UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 20-F

Transcription

1 (Mark One) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 20-F REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to OR SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report Commission file number HUTCHISON CHINA MEDITECH LIMITED (Exact name of Registrant as specified in its charter) N/A (Translation of Registrant s name into English) Cayman Islands (Jurisdiction of incorporation or organization) 22/F Hutchison House 10 Harcourt Road Hong Kong (Address of principal executive offices) Christian Hogg Chief Executive Officer Hutchison China MediTech Limited Room 2108, 21/F, Hutchison House 10 Harcourt Road Hong Kong Telephone: Facsimile: (Name, telephone, and/or facsimile number and address of Company contact person) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered American depositary shares, each representing one-half of one Nasdaq Global Select Market ordinary share, par value $1.00 per share Securities registered or to be registered pursuant to Section 12(g) of the Act: None (Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None (Title of Class) Indicate the number of outstanding shares of each of the issuer s classes of capital or common stock as of the close of the period covered by the Annual Report: 66,447,037 ordinary shares were issued and outstanding as of December 31, Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of Yes No Note checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those sections. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of large accelerated filer, accelerated filer, and emerging growth company in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer Emerging growth company If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. The term new or revised financial accounting standard refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP International Financial Reporting Standards as issued Other by the International Accounting Standards Board If Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 Item 18 If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

2 Hutchison China MediTech Limited Table of Contents Introduction 3 Forward-Looking Statements 4 PART I 7 Item 1. Identity of Directors, Senior Management and Advisers 7 Item 2. Offer Statistics and Expected Timetable 7 Item 3. Key Information 7 Item 4. Information on the Company 55 Item 4A. Unresolved Staff Comments 164 Item 5. Operating and Financial Review and Prospects 164 Item 6. Directors, Senior Management and Employees 201 Item 7. Major Shareholders and Related Party Transactions 217 Item 8. Financial Information 222 Item 9. The Offer and Listing 223 Item 10. Additional Information 224 Item 11. Quantitative and Qualitative Disclosures About Market Risk 236 Item 12. Description of Securities Other Than Equity Securities 237 PART II 238 Item 13. Defaults, Dividend Arrearages and Delinquencies 238 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 238 Item 15. Controls and Procedures 240 Item 16. Reserved 241 Item 16A. Audit Committee Financial Experts 241 Item 16B. Code of Ethics 241 Item 16C. Principal Accountant Fees and Services 241 Item 16D. Exemptions From The Listing Standards For Audit Committees 242 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 242 Item 16F. Change In Registrant s Certifying Accountant 242 Item 16G. Corporate Governance 242 Item 16H. Mine Safety Disclosure 242 PART III 243 Item 17. Financial Statements 243 Item 18. Financial Statements 243 Item 19. Exhibits 244 SIGNATURES 247

3 Introduction This annual report on Form 20-F contains our audited consolidated statements of operations data for the years ended December 31, 2017, 2016 and 2015 and our audited consolidated balance sheet data as of December 31, 2017 and Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. Our historical consolidated financial statements which we made publicly available prior to our listing on the Nasdaq Global Select Market in connection with the listing of our ordinary shares on the AIM market were prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. This annual report also includes audited consolidated income statement data for the years ended December 31, 2017, 2016 and 2015 and the audited consolidated statements of financial position data as of December 31, 2017 and 2016 for each of our three non-consolidated joint ventures, Shanghai Hutchison Pharmaceuticals, Hutchison Baiyunshan and Nutrition Science Partners, which are accounted for using the equity accounting method. These consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB. Unless the context requires otherwise, references herein to the company, Chi-Med, we, us and our refer to Hutchison China MediTech Limited and its consolidated subsidiaries and joint ventures. Conventions Used in this Annual Report Unless otherwise indicated, references in this annual report to: ADRs are to the American depositary receipts, which evidence our ADSs; ADSs are to our American depositary shares, each of which represents one-half of one ordinary share; China or PRC are to the People s Republic of China, excluding, for the purposes of this annual report only, Taiwan and the special administrative regions of Hong Kong and Macau; CK Hutchison are to CK Hutchison Holdings Limited, a company incorporated in the Cayman Islands and listed on The Stock Exchange of Hong Kong Limited, or the Hong Kong Stock Exchange, and the ultimate parent company of our majority shareholder, Hutchison Healthcare Holdings Limited; Guangzhou Baiyunshan are to Guangzhou Baiyunshan Pharmaceutical Holdings Company Limited, a leading China-based pharmaceutical company listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange; Hain Celestial are to The Hain Celestial Group, Inc., a Nasdaq-listed, natural and organic food and personal care products company; HK$ or HK dollar are to the legal currency of the Hong Kong Special Administrative Region; Hutchison Baiyunshan are to Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited, our non-consolidated joint venture with Guangzhou Baiyunshan in which we have a 50% interest through a holding company in which we have a 80% interest; Hutchison Consumer Products are to Hutchison Consumer Products Limited, our wholly owned subsidiary; Hutchison Hain Organic are to Hutchison Hain Organic Holdings Limited, our joint venture with Hain Celestial in which we have a 50% interest; Hutchison Healthcare are to Hutchison Healthcare Limited, our wholly owned subsidiary; 3

4 Hutchison MediPharma are to Hutchison MediPharma Limited, our subsidiary through which we operate our Innovation Platform in which we have a 99.8% interest; Hutchison MediPharma Holdings are to Hutchison MediPharma Holdings Limited, our subsidiary in which we have a 99.8% interest and which is the indirect holding company of Hutchison MediPharma; Hutchison Sinopharm are to Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited, our joint venture with Sinopharm in which we have a 51% interest; Nutrition Science Partners are to Nutrition Science Partners Limited, our non-consolidated joint venture with Nestlé Health Science S.A. in which we have a 50% interest; ordinary shares or shares are to our ordinary shares, par value $1.00 per share; RMB or renminbi are to the legal currency of the PRC; Shanghai Hutchison Pharmaceuticals are to Shanghai Hutchison Pharmaceuticals Limited, our non-consolidated joint venture with Shanghai Pharmaceuticals in which we have a 50% interest; Shanghai Pharmaceuticals are to Shanghai Pharmaceuticals Holding Co., Ltd., a leading pharmaceutical company in China listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange; Sinopharm are to Sinopharm Group Co. Ltd., a leading distributor of pharmaceutical and healthcare products and a leading supply chain service provider in China listed on the Hong Kong Stock Exchange; United States or U.S. are to the United States of America; $ or U.S. dollars are to the legal currency of the United States; and or pound sterling are to the legal currency of the United Kingdom. Our reporting currency is the U.S. dollar. In addition, this annual report also contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations of pound sterling into U.S. dollar were made at 1.00 to $1.34 and all translations of HK dollars into U.S. dollars were made at HK$7.80 to $1.00, which are the exchange rates used in our audited consolidated financial statements as of and for the year ended December 31, We make no representation that the pound sterling, HK dollar or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars, pounds sterling or HK dollars, as the case may be, at any particular rate or at all. Trademarks and Service Marks We own or have been licensed rights to trademarks, service marks and trade names for use in connection with the operation of our business, including, but not limited to, our trademark Chi-Med. All other trademarks, service marks or trade names appearing in this annual report that are not identified as marks owned by us are the property of their respective owners. Solely for convenience, the trademarks, service marks and trade names referred to in this annual report are listed without the, (TM) and (sm) symbols, but we will assert, to the fullest extent under applicable law, our applicable rights in these trademarks, service marks and trade names. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This annual report contains forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of These statements relate to future events or to 4

5 our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The words anticipate, assume, believe, contemplate, continue, could, estimate, expect, goal, intend, may, might, objective, plan, potential, predict, project, positioned, seek, should, target, will, would, or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management s beliefs and assumptions, are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors. These forward-looking statements include statements regarding: the initiation, timing, progress and results of our or our collaboration partners pre-clinical and clinical studies, and our research and development programs; our or our collaboration partners ability to advance our drug candidates into, and/or successfully complete, clinical studies; the timing or regulatory filings and the likelihood of favorable regulatory outcomes and approvals; regulatory developments in China, the United States and other countries; the adaptation of our Commercial Platform to market and sell our drug candidates and the commercialization of our drug candidates, if approved; the pricing and reimbursement of our and our joint ventures products and our drug candidates, if approved; our ability to contract on commercially reasonable terms with contract research organizations, or CROs, third-party suppliers and manufacturers; the scope of protection we are able to establish and maintain for intellectual property rights covering our or our joint ventures products and our drug candidates; the ability of third parties with whom we contract to successfully conduct, supervise and monitor clinical studies for our drug candidates; estimates of our expenses, future revenue, capital requirements and our needs for additional financing; our ability to obtain additional funding for our operations; the potential benefits of our collaborations and our ability to enter into future collaboration arrangements; the ability and willingness of our collaborators to actively pursue development activities under our collaboration agreements; our or our joint venture Nutrition Science Partners receipt of milestone or royalty payments pursuant to our strategic alliances with AstraZeneca AB (publ), or AstraZeneca, Lilly (Shanghai) Management Company Limited (formerly known as Eli Lilly Trading (Shanghai) Company Limited), or Eli Lilly, and Nestlé Health Science S.A., or Nestlé Health Science, as applicable; the rate and degree of market acceptance of our drug candidates; our financial performance; our ability to attract and retain key scientific and management personnel; 5

6 our relationship with our joint venture and collaboration partners; developments relating to our competitors and our industry, including competing drug products; and changes in our tax status or the tax laws in the jurisdictions that we operate. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. As a result, any or all of our forward-looking statements in this annual report may turn out to be inaccurate. We have included important factors in the cautionary statements included in this annual report on Form 20-F, particularly in the section of this annual report on Form 20-F titled Risk Factors, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Moreover, we operate in a highly competitive and rapidly changing environment in which new risks often emerge. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forwardlooking statements we may make. You should read this annual report and the documents that we reference herein and have filed as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained herein are made as of the date of this annual report, and we do not assume any obligation to update any forward-looking statements except as required by applicable law. In addition, this annual report contains statistical data and estimates that we have obtained from industry publications and reports generated by third-party market research firms. Although we believe that the publications, reports and surveys are reliable, we have not independently verified the data and cannot guarantee the accuracy or completeness of such data. You are cautioned not to give undue weight to this data. Such data involves risks and uncertainties and are subject to change based on various factors, including those discussed above. 6

7 PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3. KEY INFORMATION A. Selected Financial Data. Our Selected Financial Data The following tables set forth our selected consolidated financial data. We have derived the selected consolidated statements of operations data for the years ended December 31, 2017, 2016 and 2015 and the selected consolidated balance sheet data as of December 31, 2017 and 2016 from our audited consolidated financial statements, which were prepared in accordance with U.S. GAAP and are included in this annual report. You should read this data together with such consolidated financial statements and the related notes and Item 5 Operating and Financial Review and Prospects. Our historical results are not necessarily indicative of the results to be expected for any future periods. All of our operations are continuing operations and we have not proposed or paid dividends in any of the periods presented. The following selected consolidated financial data for the years ended December 31, 2014 and 2013 and as of December 31, 2015 and 2014 have been derived from our audited consolidated financial statements for those years, which were prepared in accordance with U.S. GAAP and are not included in this annual report. 7

8 Year Ended December 31, (in thousands, except share and per share data) Consolidated statements of operations data: Revenues Sales third parties $ 196,720 $ 171,058 $ 118,113 $ 59,162 $ 8,667 Sales related parties 8,486 9,794 8,074 7,823 7,803 Revenue from license and collaboration agreements third parties 26,315 26,444 44,060 12,336 14,546 Revenue from research and development services third parties 355 2,573 3,696 1,919 Revenue from research and development services related parties 9,682 8,429 5,383 4,312 3,612 Total revenues 241, , ,203 87,329 36,547 Operating expenses Costs of sales third parties (169,764) (149,132) (104,859) (53,477) (5,380) Costs of sales related parties (6,056) (7,196) (5,918) (5,372) (5,814) Research and development expenses (75,523) (66,871) (47,368) (29,914) (22,731) Selling expenses (19,322) (17,998) (10,209) (4,112) (3,452) Administrative expenses (23,955) (21,580) (19,620) (12,713) (12,366) Total operating expenses (294,620) (262,777) (187,974) (105,588) (49,743) Loss from operations (53,417) (46,697) (9,771) (18,259) (13,196) Other income/(expense) Interest income 1, Gain on disposal of a business 30,000 Other income ,221 Interest expense (1,455) (1,631) (1,404) (1,516) (1,485) Other expense (692) (139) (202) (761) (69) Total other income/(expense) (119) (659) (769) (1,698) 30,118 (Loss)/income before income taxes and equity in earnings of equity investees (53,536) (47,356) (10,540) (19,957) 16,922 Income tax expense (3,080) (4,331) (1,605) (1,343) (1,050) Equity in earnings of equity investees, net of tax 33,653 66,244 22,572 15,180 11,031 Net (loss)/income from continuing operations (22,963) 14,557 10,427 (6,120) 26,903 Income/(loss) from discontinued operations, net of tax 2,034 (1,978) Net (loss)/income (22,963) 14,557 10,427 (4,086) 24,925 Less: Net income attributable to non-controlling interests (3,774) (2,859) (2,434) (3,220) (983) Net (loss)/income attributable to the company (26,737) 11,698 7,993 (7,306) 23,942 Accretion on redeemable non-controlling interests (43,001) (25,510) Net (loss)/income attributable to ordinary shareholders of the company $ (26,737) $ 11,698 $ (35,008) $ (32,816) $ 23,942 (Losses)/earnings per share attributable to ordinary shareholders of the company basic ($ per share) Continuing operations $ (0.43) $ 0.20 $ (0.64) $ (0.64) $ 0.49 Discontinued operations $ $ $ $ 0.02 $ (0.03) (Losses)/earnings per share attributable to ordinary shareholders of the company diluted ($ per share) Continuing operations $ (0.43) $ 0.20 $ (0.64) $ (0.64) $ 0.44 Discontinued operations $ $ $ $ 0.02 $ (0.03) Number of shares used in per share calculation basic 61,717,171 59,715,173 54,659,315 52,563,387 52,050,988 Number of shares used in per share calculation diluted 61,717,171 59,971,050 54,659,315 52,563,387 52,878,426 Net (loss)/income $ (22,963) $ 14,557 $ 10,427 $ (4,086) $ 24,925 Other comprehensive income/(loss): Foreign currency translation gain/(loss) 10,964 (10,722) (5,557) (2,712) 3,243 Total comprehensive (loss)/income (11,999) 3,835 4,870 (6,798) 28,168 Less: Comprehensive income attributable to non-controlling interests (5,033) (1,427) (1,732) (2,944) (1,296) Total comprehensive (loss)/income attributable to the company $ (17,032) $ 2,408 $ 3,138 $ (9,742) $ 26,872 8

9 As of December 31, (in thousands) Consolidated balance sheet data: Cash and cash equivalents $ 85,265 $ 79,431 $ 31,941 $ 38,946 Total assets $ 597,932 $ 342,437 $ 229,599 $ 210,617 Total current liabilities $ 104,600 $ 95,119 $ 81,062 $ 75,299 Total non-current liabilities $ 8,366 $ 43,258 $ 46,260 $ 37,367 Total shareholders equity $ 484,966 $ 204,060 $ 102,277 $ 56,915 Selected Financial Data of Our Non-Consolidated Joint Ventures We have three non-consolidated joint ventures Shanghai Hutchison Pharmaceuticals, Hutchison Baiyunshan and Nutrition Science Partners. The following selected consolidated comprehensive income and cash flow data of each such joint venture for the years ended December 31, 2017, 2016 and 2015 and the following selected consolidated statements of financial position of each such joint venture as of December 31, 2017 and 2016 have been derived from their respective audited consolidated financial statements, which were prepared in accordance with IFRS as issued by the IASB and are included elsewhere in this annual report. You should read this data together with such consolidated financial statements of our non-consolidated joint ventures and the related notes and Item 5 Operating and Financial Review and Prospects. The following selected consolidated financial data for the years ended December 31, 2014 and 2013 and as of December 31, 2015 and 2014 have been derived from their respective audited consolidated financial statements, which were prepared in accordance with IFRS as issued by the IASB and are not included in this annual report. The historical results of our joint ventures for any prior period are not necessarily indicative of results to be expected in any future periods. Shanghai Hutchison Pharmaceuticals Year Ended December 31, (in thousands) Income statement and cash flow data: Revenue $ 244,557 $ 222,368 $ 181,140 $ 154,703 $ 138,160 Profit for the year $ 55,623 $ 120,499 $ 31,307 $ 26,402 $ 22,424 Dividends paid to shareholders $ (81,299) $ (55,057) $ (6,410) $ (19,077) $ (17,162) Our equity in earnings of Shanghai Hutchison Pharmaceuticals reported under U.S. GAAP was $27.8 million, $60.3 million, $15.7 million, $13.2 million and $11.2 million for the years ended December 31, 2017, 2016, 2015, 2014 and 2013, respectively. As of December 31, (in thousands) Financial position data: Cash and cash equivalents $ 43,527 $ 20,292 $ 43,141 $ 16,575 Total assets $ 233,012 $ 244,006 $ 224,969 $ 143,174 Total liabilities $ 100,281 $ 93,872 $ 131,706 $ 71,268 Total shareholders equity $ 132,731 $ 150,134 $ 93,263 $ 71,906 9

10 Hutchison Baiyunshan Year Ended December 31, (in thousands) Income statement and cash flow data: Revenue $ 227,422 $ 224,131 $ 211,603 $ 243,746 $ 247,626 Profit for the year $ 20,805 $ 20,128 $ 21,216 $ 20,865 $ 17,361 Profit for the year attributable to shareholders of Hutchison Baiyunshan $ 20,776 $ 20,376 $ 21,376 $ 20,775 $ 17,165 Dividends paid to shareholders $ (29,872)* $ (6,000) $ (6,410) $ (12,820) $ (6,462) * Dividends paid to shareholders exclude an additional $15.3 million of dividends declared but unpaid as of December 31, Our equity in earnings of Hutchison Baiyunshan reported under U.S. GAAP was $10.4 million, $10.2 million, $10.7 million, $10.4 million and $8.6 million for the years ended December 31, 2017, 2016, 2015, 2014 and 2013, respectively. As of December 31, (in thousands) Financial position data: Cash and cash equivalents $ 13,843 $ 23,448 $ 31,155 $ 31,004 Total assets $ 208,796 $ 221,735 $ 202,646 $ 217,171 Total liabilities $ 94,535 $ 88,366 $ 77,583 $ 101,863 Total shareholders equity $ 114,261 $ 133,369 $ 125,063 $ 115,308 Nutrition Science Partners Year Ended December 31, (in thousands) Income statement data: Revenue $ $ $ $ $ Loss for the year $ (9,210) $ (8,482) $ (7,552) $ (16,812) $ (17,543) Our equity in loss of Nutrition Science Partners reported under U.S. GAAP was $4.6 million, $4.2 million, $3.8 million, $8.4 million and $8.8 million for the years ended December 31, 2017, 2016, 2015, 2014 and 2013, respectively. As of December 31, (in thousands) Financial position data: Cash and cash equivalents $ 9,640 $ 5,393 $ 2,624 $ 6,249 Total assets $ 39,640 $ 35,393 $ 33,034 $ 38,548 Total liabilities $ 1,239 $ 1,782 $ 14,941 $ 12,903 Total shareholders equity $ 38,401 $ 33,611 $ 18,093 $ 25,645 B. Capitalization and Indebtedness. Not applicable. C. Reasons for the Offer and Use of Proceeds. Not applicable. 10

11 D. Risk Factors. Risks Related to Our Financial Position and Need for Capital We may need substantial funding for our product development programs and commercialization efforts. If we are unable to raise capital on acceptable terms when needed, we could incur losses and be forced to delay, reduce or eliminate such efforts. We expect our expenses to increase significantly in connection with our ongoing activities, particularly as we or our collaboration partners advance the clinical development of our eight clinical drug candidates which are currently in active or completed clinical studies in 36 target patient populations in various countries, including six Phase III studies on savolitinib, fruquintinib and sulfatinib, and continue research and development and initiate additional clinical trials of, and seek regulatory approval for, these and other future drug candidates. In addition, if we obtain regulatory approval for any of our drug candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. In particular, the costs that may be required for the manufacture of any drug candidate that receives regulatory approval may be substantial as we may have to modify or increase the production capacity at our current manufacturing facilities or contract with third-party manufacturers. We may also incur expenses as we create additional infrastructure to support our operations as a U.S. public company. Accordingly, we may need to obtain substantial funding in connection with our continuing operations through public or private equity offerings, debt financings, collaborations or licensing arrangements or other sources. If we are unable to raise capital when needed or on attractive terms, we could incur losses and be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts. We believe that our expected cashflow from operations (including from our Commercial Platform and milestone and other payments from our collaboration partners) and our cash and cash equivalents as of December 31, 2017, as well as (i) the HK$234.0 million ($30.0 million) revolving credit facility with The Hongkong and Shanghai Banking Corporation Limited, or HSBC, (ii) the aggregate HK$351.0 million ($45.0 million) in credit facilities entered into with Bank of America N.A., (iii) the aggregate HK$195.0 million ($25.0 million) in credit facilities entered into with Deutsche Bank AG, Hong Kong Branch and (iv) the HK$210.0 million ($26.9 million) three-year term loan and HK$190.0 million ($24.4 million) 18-month revolving loan facility from Scotiabank (Hong Kong) Limited, or Scotiabank, will enable us to fund our operating expenses, debt service and capital expenditure requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including: the number and development requirements of the drug candidates we pursue; the scope, progress, timing, results and costs of researching and developing our drug candidates, and conducting pre-clinical and clinical trials; the cost, timing and outcome of regulatory review of our drug candidates; the cost and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our drug candidates for which we receive regulatory approval; the amount and timing of any milestone payments from our collaboration partners, with whom we cooperate with respect to the development and potential commercialization of certain of our drug candidates; the cash received, if any, received from commercial sales of any drug candidates for which we receive regulatory approval; 11

12 our ability to establish and maintain strategic partnerships, collaboration, licensing or other arrangements and the financial terms of such agreements; the cost, timing and outcome of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; our headcount growth and associated costs; and the costs of operating as a public company in the United States and on the AIM market. Identifying potential drug candidates and conducting pre-clinical testing and clinical trials is a time-consuming, expensive and uncertain process that may take years to complete, and our commercial revenue, if any, will be derived from sales of products that we do not expect to be commercially available until we receive regulatory approval, if at all. We may never generate the necessary data or results required to obtain regulatory approval and achieve product sales, and even if one or more of our drug candidates is approved, they may not achieve commercial success. Accordingly, we will need to continue to rely on financing to achieve our business objectives. Adequate financing may not be available to us on acceptable terms, or at all. If the CK Hutchison group ceases to own a majority stake in our company, we may incur significantly higher borrowing costs. Hutchison Whampoa Limited, a wholly owned subsidiary of CK Hutchison, has historically guaranteed certain of our bank borrowings. The CK Hutchison group does not currently guarantee any of our loans and has no obligation to enter into new guarantees in the future. CK Hutchison has, however, issued letters of awareness to certain of our current lenders and committed not to reduce its shareholding to less than 40% of our issued share capital while such loans are outstanding. We may incur higher funding costs if we do not have the benefit of the CK Hutchison group guarantees or other similar arrangements by the CK Hutchison group. Raising capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to technologies or drug candidates. We expect to finance our cash needs in part through cash flow generated by our Commercial Platform, and we may also rely on raising capital through a combination of public or private equity offerings, debt financings and/or license and development agreements with collaboration partners. In addition, we may seek capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our existing shareholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. Additional debt financing would also result in increased fixed payment obligations. In addition, if we raise funds through collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or grant licenses on terms that may not be favorable to us. We may also lose control of the development of drug candidates, such as the pace and scope of clinical trials, as a result of such third-party arrangements. If we are unable to raise funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves. 12

13 Our existing and any future indebtedness could adversely affect our ability to operate our business. Our outstanding indebtedness combined with current and future financial obligations and contractual commitments, including any additional indebtedness beyond our current facilities with HSBC, Scotiabank, Bank of America N.A. and Deutsche Bank AG could have significant adverse consequences, including: requiring us to dedicate a portion of our cash resources to the payment of interest and principal, and prepayment and repayment fees and penalties, thereby reducing money available to fund working capital, capital expenditures, product development and other general corporate purposes; increasing our vulnerability to adverse changes in general economic, industry and market conditions; subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing; limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options. We intend to satisfy our current and future debt service obligations with our existing cash and cash equivalents and short-term investments. Nevertheless, we may not have sufficient funds, and may be unable to arrange for financing, to pay the amounts due under our existing debt. Failure to make payments or comply with other covenants under our existing debt instruments could result in an event of default and acceleration of amounts due. Risks Related to Our Innovation Platform Historically, our in-house research and development division, known as our Innovation Platform, has not generated significant profits or has operated at a net loss. We do not expect our Innovation Platform to be significantly profitable unless and until we obtain regulatory approval of, and begin to sell, one or more of our drug candidates. We expect to incur significant sales and marketing costs as we prepare to commercialize our drug candidates. Even if we initiate and successfully complete clinical trials of our drug candidates, and our drug candidates are approved for commercial sale, and despite expending these costs, our drug candidates may not be commercially successful. We may not achieve profitability soon after generating drug sales, if ever. If we are unable to generate drug sales, we will not become profitable and may be unable to continue operations without continued funding. All of our drug candidates are still in development. If we are unable to obtain regulatory approval and ultimately commercialize our drug candidates or experience significant delays in doing so, our business will be materially harmed. All of our drug candidates are still in development including eight in clinical development. In June 2017, we completed our first new drug application, or NDA, submission in China, which was for fruquintinib in patients with third-line colorectal cancer. Although we and our joint venture Nutrition Science Partners receive certain payments from our collaboration partners, including upfront payments and payments for achieving certain development, regulatory or commercial milestones, for certain of our drug candidates, our ability to generate revenue from our drug candidates is dependent on their receipt of regulatory approval for and successfully commercializing such products, which may never occur. Each of our drug candidates will require additional pre-clinical and/or clinical development, regulatory approval in multiple jurisdictions, manufacturing supply, substantial investment and significant marketing efforts 13

14 before we generate any revenue from product sales. The success of our drug candidates will depend on several factors, including the following: successful completion of pre-clinical and/or clinical studies; successful enrollment in, and completion of, clinical trials; receipt of regulatory approvals from applicable regulatory authorities for planned clinical trials, future clinical trials or drug registrations; successful completion of all safety studies required to obtain regulatory approval in the United States, China and other jurisdictions for our drug candidates; adapting our commercial manufacturing capabilities to the specifications for our drug candidates for clinical supply and commercial manufacturing; obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our drug candidates; launching commercial sales of our drug candidates, if and when approved, whether alone or in collaboration with others; acceptance of the drug candidates, if and when approved, by patients, the medical community and third-party payors; effectively competing with other therapies; obtaining and maintaining healthcare coverage and adequate reimbursement; enforcing and defending intellectual property rights and claims; and maintaining a continued acceptable safety profile of the drug candidates following approval. If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our drug candidates, which would materially harm our business. Our primary approach to the discovery and development of drug candidates focuses on the inhibition of kinases, some of which are unproven, and we do not know whether we will be able to develop any products of commercial value. A primary focus of our research and development efforts is on identifying kinase targets for which drug compounds previously developed by others affecting those targets have been unsuccessful due to limited selectivity, off-target toxicity and other problems. We then work to engineer drug candidates which have the potential to have superior efficacy, safety and other features as compared to such prior drug compounds. We also focus on developing drug compounds with the potential to be global best-in-class/ next-generation therapies for validated kinase targets. Even if we are able to develop compounds that successfully target the relevant kinases in pre-clinical studies, we may not succeed in demonstrating safety and efficacy of the drug candidates in clinical trials. As a result, our efforts may not result in the discovery or development of drugs that are commercially viable or are superior to existing drugs or other therapies on the market. While the results of pre-clinical studies and early-stage clinical trials have suggested that certain of our drug candidates may successfully inhibit kinases and may have significant utility in several cancer indications, potentially in combination with other cancer drugs and with chemotherapy, we have not yet demonstrated efficacy and safety for most of our drug candidates in later stage clinical trials. In addition, we have not yet had a drug candidate receive approval or clearance from the U.S. Food and Drug Administration, or FDA, the China Food and Drug Administration, or CFDA, or another 14

15 regulatory authority. While the FDA and CFDA have approved kinases inhibitors before, the regulatory review process for our drug candidates is uncertain, and we may be required to conduct additional studies or trials beyond those we anticipate resulting in a longer regulatory approval pathway. We may expend our limited resources to pursue a particular drug candidate or indication and fail to capitalize on drug candidates or indications that may be more profitable or for which there is a greater likelihood of success. Because we have limited financial and managerial resources, we must limit our research programs to specific drug candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other drug candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. In addition, if we do not accurately evaluate the commercial potential or target market for a particular drug candidate, we may relinquish valuable rights to that drug candidate through collaboration, licensing or other royalty arrangements when it would have been more advantageous for us to retain sole development and commercialization rights to such drug candidate. We have no history of commercializing our internally developed drugs, which may make it difficult to evaluate our future prospects. The operations of our Innovation Platform have been limited to developing and securing our technology and undertaking pre-clinical studies and clinical trials of our drug candidates, either independently or with our collaboration partners. We have not yet demonstrated the ability to successfully complete development of any drug candidates, obtain marketing approvals, manufacture our internally developed drugs at a commercial scale, or conduct sales and regulatory activities necessary for successful product commercialization of our drug candidates. While we believe we will be able to successfully leverage our existing Commercial Platform to manufacture, sell and market our drug candidates in China once approved, any predictions about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing our internally developed pharmaceutical products. The regulatory approval processes of the FDA, CFDA and comparable authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our drug candidates, our ability to generate revenue will be materially impaired. Our drug candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, distribution, import and export are subject to comprehensive regulation by the FDA, CFDA and other regulatory agencies in the United States and China and by comparable authorities in other countries. Securing regulatory approval requires the submission of extensive pre-clinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the drug candidate s safety and efficacy. Securing regulatory approval also requires the submission of information about the drug manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Our drug candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use. The process of obtaining regulatory approvals in the United States, China and other countries is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the drug candidates involved. Changes in regulatory approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each 15

16 submitted NDA, pre-market approval or equivalent application types, may cause delays in the approval or rejection of an application. The FDA, CFDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional pre-clinical, clinical or other studies. Our drug candidates, including fruquintinib for which we submitted our first NDA in June 2017, could be delayed in receiving, or fail to receive, regulatory approval for many reasons, including the following: the FDA, CFDA or comparable regulatory authorities may disagree with the number, design, size, conduct or implementation of our clinical trials; we may be unable to demonstrate to the satisfaction of the FDA, CFDA or comparable regulatory authorities that a drug candidate is safe and effective for its proposed indication; the results of clinical trials may not meet the level of statistical significance required by the FDA, CFDA or comparable regulatory authorities for approval; we may be unable to demonstrate that a drug candidate s clinical and other benefits outweigh its safety risks; the FDA, CFDA or comparable regulatory authorities may disagree with our interpretation of data from pre-clinical studies or clinical trials; the data collected from clinical trials of our drug candidates may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere; the FDA, CFDA or comparable regulatory authorities may fail to approve the manufacturing processes for our clinical and commercial supplies; the approval policies or regulations of the FDA, CFDA or comparable regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval; the FDA, CFDA or comparable regulatory authorities may restrict the use of our products to a narrow population; and our collaboration partners or CROs that are retained to conduct the clinical trials of our drug candidates may take actions that materially and adversely impact the clinical trials. In addition, even if we were to obtain approval, regulatory authorities may approve any of our drug candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our drugs, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a drug candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that drug candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our drug candidates. If the FDA, CFDA or another regulatory agency revokes its approval of, or if safety, efficacy, manufacturing or supply issues arise with, any therapeutic that we use in combination with our drug candidates, we may be unable to market such drug candidate or may experience significant regulatory delays or supply shortages, and our business could be materially harmed. We are currently focusing on the clinical development of savolitinib as both a monotherapy and in combination with immunotherapy Imfinzi (durvalumab), targeted therapies (Tagrisso (osimertinib) and Iressa (gefitinib)) and chemotherapy (Taxotere (docetaxel)). We are also focusing on the clinical development of our drug candidate fruquintinib as both a monotherapy and in combination with chemotherapy (Taxol (paclitaxel)) and targeted therapies (Iressa (gefitinib)), and may focus on additional combinations in the future. However, we did not develop or obtain regulatory approval for, and we do not manufacture or sell, Tagrisso, Iressa, Taxotere, Taxol or Imfinzi or any other therapeutic we use in 16

17 combination with our drug candidates. We may also seek to develop our drug candidates in combination with other therapeutics in the future. If the FDA, CFDA or another regulatory agency revokes its approval of any of Tagrisso, Iressa, Taxotere, Taxol, Imfinzi or another therapeutic we use in combination with our drug candidates, we will not be able to market our drug candidates in combination with such revoked therapeutic. If safety or efficacy issues arise with these or other therapeutics that we seek to combine with our drug candidates in the future, we may experience significant regulatory delays, and we may be required to redesign or terminate the applicable clinical trials. In addition, if manufacturing or other issues result in a supply shortage of Tagrisso, Iressa, Taxotere, Taxol, Imfinzi or any other combination therapeutics, we may not be able to complete clinical development of savolitinib, fruquintinib and/or another of our drug candidates on our current timeline or at all. Even if one or more of our drug candidates were to receive regulatory approval for use in combination with Tagrisso, Iressa, Taxotere, Taxol, Imfinzi or another therapeutic, we would continue to be subject to the risk that the FDA, CFDA or another regulatory agency could revoke its approval of the combination therapeutic, or that safety, efficacy, manufacturing or supply issues could arise with one of these combination therapeutics. This could result in savolitinib, fruquintinib or one of our other products being removed from the market or being less successful commercially. We face substantial competition, which may result in others discovering, developing or commercializing drugs before or more successfully than we do. The development and commercialization of new drugs is highly competitive. We face competition with respect to our current drug candidates, and will face competition with respect to any drug candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market drugs or are pursuing the development of therapies in the field of kinase inhibition for cancer and other diseases. Some of these competitive drugs and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. Specifically, there are a large number of companies developing or marketing treatments for cancer, including many major pharmaceutical and biotechnology companies. Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize drugs that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any drugs that we or our collaborators may develop. Our competitors also may obtain FDA, CFDA or other regulatory approval for their drugs more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we or our collaborators are able to enter the market. The key competitive factors affecting the success of all of 17

18 our drug candidates, if approved, are likely to be their efficacy, safety, convenience, price, the level of generic competition and the availability of reimbursement from government and other third-party payors. Clinical development involves a lengthy and expensive process with an uncertain outcome. There is a risk of failure for each of our drug candidates. It is difficult to predict when or if any of our drug candidates will prove effective and safe in humans or will receive regulatory approval. Before obtaining regulatory approval from regulatory authorities for the sale of any drug candidate, we or our collaboration partners must complete pre-clinical studies and then conduct extensive clinical trials to demonstrate the safety and efficacy of our drug candidates in humans. Clinical testing is expensive, difficult to design and implement and can take many years to complete. The outcomes of pre-clinical development testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, pre-clinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their drug candidates performed satisfactorily in pre-clinical studies and clinical trials have nonetheless failed to obtain regulatory approval of their drug candidates. Our current or future clinical trials may not be successful. Commencing each of our clinical trials is subject to finalizing the trial design based on ongoing discussions with the FDA, CFDA or other regulatory authorities. The FDA, CFDA and other regulatory authorities could change their position on the acceptability of our trial designs or clinical endpoints, which could require us to complete additional clinical trials or impose approval conditions that we do not currently expect. Successful completion of our clinical trials is a prerequisite to submitting an NDA or analogous filing to the FDA, CFDA or other regulatory authorities for each drug candidate and, consequently, the ultimate approval and commercial marketing of our drug candidates. We do not know whether any of our clinical trials will begin or be completed on schedule, if at all. We and our collaboration partners may incur additional costs or experience delays in completing our pre-clinical or clinical trials, or ultimately be unable to complete the development and commercialization of our drug candidates. We and our collaboration partners, including AstraZeneca, Eli Lilly and Nestlé Health Science, may experience delays in completing our pre-clinical or clinical trials, and numerous unforeseen events could arise during, or as a result of, future clinical trials, which could delay or prevent us from receiving regulatory approval, including: regulators or institutional review boards, or IRBs, or ethics committees may not authorize us or our investigators to commence or conduct a clinical trial at a prospective trial site; we may experience delays in reaching, or we may fail to reach, agreement on acceptable terms with prospective trial sites and prospective CROs, who conduct clinical trials on behalf of us and our collaboration partners, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; clinical trials may produce negative or inconclusive results, and we or our collaboration partners may decide, or regulators may require us or them, to conduct additional clinical trials or we may decide to abandon drug development programs; the number of patients required for clinical trials of our drug candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate; third-party contractors used in our clinical trials may fail to comply with regulatory requirements or meet their contractual obligations in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we or our collaboration partners add new clinical trial sites or investigators; 18

19 we or our collaboration partners may elect to, or regulators, IRBs or ethics committees may require that we or our investigators, suspend or terminate clinical research for various reasons, including non-compliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks; the cost of clinical trials of our drug candidates may be greater than we anticipate; the supply or quality of our drug candidates or other materials necessary to conduct clinical trials of our drug candidates may be insufficient or inadequate; and our drug candidates may have undesirable side effects or unexpected characteristics, causing us or our investigators, regulators, IRBs or ethics committees to suspend or terminate the trials, or reports may arise from pre-clinical or clinical testing of other cancer therapies that raise safety or efficacy concerns about our drug candidates. We could encounter regulatory delays if a clinical trial is suspended or terminated by us or our collaboration partners, by, as applicable, the IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board, which is an independent group of experts that is formed to monitor clinical trials while ongoing, or by the FDA, CFDA or other regulatory authorities. Such authorities may impose a suspension or termination due to a number of factors, including: a failure to conduct the clinical trial in accordance with regulatory requirements or the applicable clinical protocols, inspection of the clinical trial operations or trial site by the FDA, CFDA or other regulatory authorities that results in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Many of the factors that cause a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our drug candidates. Further, the FDA, CFDA or other regulatory authorities may disagree with our clinical trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials. If we or our collaboration partners are required to conduct additional clinical trials or other testing of our drug candidates beyond those that are currently contemplated, if we or our collaboration partners are unable to successfully complete clinical trials of our drug candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may: be delayed in obtaining regulatory approval for our drug candidates; not obtain regulatory approval at all; obtain approval for indications or patient populations that are not as broad as intended or desired; be subject to post-marketing testing requirements; or have the drug removed from the market after obtaining regulatory approval. Our drug development costs will also increase if we experience delays in testing or regulatory approvals. We do not know whether any of our clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant pre-clinical study or clinical trial delays also could allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our drug candidates and may harm our business and results of operations. Any delays in our clinical development programs may harm our business, financial condition and prospects significantly. 19

20 If we or our collaboration partners experience delays or difficulties in the enrollment of patients in clinical trials, the progress of such clinical trials and our receipt of necessary regulatory approvals could be delayed or prevented. We or our collaboration partners may not be able to initiate or continue clinical trials for our drug candidates if we or our collaboration partners are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA, CFDA or similar regulatory authorities. In particular, we and our collaboration partners have designed many of our clinical trials, and expect to design future trials, to include some patients with the applicable genomic alteration that causes the disease with a view to assessing possible early evidence of potential therapeutic effect. Genomically defined diseases, however, may have relatively low prevalence, and it may be difficult to identify patients with the applicable genomic alteration. In addition, for our fruquintinib trials, we focus on enrolling patients who have failed their first or second-line treatments, which limits the total size of the patient population available for such trials. The inability to enroll a sufficient number of patients with the applicable genomic alteration or that meet other applicable criteria for our clinical trials would result in significant delays and could require us or our collaboration partners to abandon one or more clinical trials altogether. In addition, some of our competitors have ongoing clinical trials for drug candidates that treat the same indications as our drug candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors drug candidates. Patient enrollment may be affected by other factors including: the severity of the disease under investigation; the total size and nature of the relevant patient population; the design and eligibility criteria for the clinical trial in question; the availability of an appropriate genomic screening test; the perceived risks and benefits of the drug candidate under study; the efforts to facilitate timely enrollment in clinical trials; the patient referral practices of physicians; the availability of competing therapies which are undergoing clinical trials; the ability to monitor patients adequately during and after treatment; and the proximity and availability of clinical trial sites for prospective patients. Enrollment delays in our clinical trials may result in increased development costs for our drug candidates, which could cause the value of our company to decline and limit our ability to obtain financing. Our drug candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following regulatory approval, if any. Undesirable side effects caused by our drug candidates could cause us or our collaboration partners to interrupt, delay or halt clinical trials or could cause regulatory authorities to interrupt, delay or halt our clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, CFDA or other regulatory authorities. In particular, as is the case with all oncology drugs, it is likely that there may be side effects, for example, hand-foot syndrome, associated with the use of certain of our drug candidates. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA, CFDA or comparable regulatory authorities could order us to cease further development of or deny approval of our 20

21 drug candidates for some or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. Further, our drug candidates could cause undesirable side effects related to off-target toxicity. Many of the currently approved tyrosine kinase inhibitors have been associated with off-target toxicities because they affect multiple kinases. While we believe that the kinase selectivity of our drug candidates has the potential to significantly improve the unfavorable adverse off-target toxicity issues, if patients were to experience off-target toxicity, we may not be able to achieve an effective dosage level, receive approval to market, or achieve the commercial success we anticipate with respect to any of our drug candidates, which could prevent us from ever generating revenue or achieving profitability. Many compounds that initially showed promise in early-stage testing for treating cancer have later been found to cause side effects that prevented further development of the compound. Clinical trials assess a sample of the potential patient population. With a limited number of patients and duration of exposure, rare and severe side effects of our drug candidates may only be uncovered with a significantly larger number of patients exposed to the drug candidate. If our drug candidates receive regulatory approval and we or others identify undesirable side effects caused by such drug candidates (or any other similar drugs) after such approval, a number of potentially significant negative consequences could result, including: regulatory authorities may withdraw or limit their approval of such drug candidates; regulatory authorities may require the addition of labeling statements, such as a boxed warning or a contra-indication; we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; we may be required to change the way such drug candidates are distributed or administered, conduct additional clinical trials or change the labeling of the drug candidates; regulatory authorities may require a Risk Evaluation and Mitigation Strategy, or REMS, plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools; we may be subject to regulatory investigations and government enforcement actions; we may decide to remove such drug candidates from the marketplace; we could be sued and held liable for injury caused to individuals exposed to or taking our drug candidates; and our reputation may suffer. Any of these events could prevent us from achieving or maintaining market acceptance of the affected drug candidates and could substantially increase the costs of commercializing our drug candidates, if approved, and significantly impact our ability to successfully commercialize our drug candidates and generate revenue. 21

22 We and our collaboration partners have conducted and intend to conduct additional clinical trials for certain of our drug candidates at sites outside the United States, and the FDA may not accept data from trials conducted in such locations or may require additional U.S.-based trials. We and our collaboration partners have conducted, currently are conducting and intend in the future to conduct, clinical trials outside the United States, particularly in China where our Innovation Platform is headquartered as well as in Australia, Canada, Korea, U.K. and Spain. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted by qualified investigators in accordance with current good clinical practices, or GCPs, including review and approval by an independent ethics committee and receipt of informed consent from trial patients. The trial population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. Generally, the patient population for any clinical trial conducted outside of the United States must be representative of the population for which we intend to seek approval in the United States. In addition, while these clinical trials are subject to applicable local laws, FDA acceptance of the data will be dependent upon its determination that the trials also comply with all applicable U.S. laws and regulations. There can be no assurance that the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data from our clinical trials of fruquintinib, sulfatinib, epitinib or theliatinib in China, savolitinib in the U.K., Spain, South Korea, Canada and China, or HMPL-523, HMPL-689 and HMPL-453 in Australia and China, for example, or any other trial that we or our collaboration partners conduct outside the United States, it would likely result in the need for additional clinical trials, which would be costly and time-consuming and delay or permanently halt our ability to develop and market these or other drug candidates in the United States. In addition, there are risks inherent in conducting clinical trials in jurisdictions outside the United States including: regulatory and administrative requirements of the jurisdiction where the trial is conducted that could burden or limit our ability to conduct our clinical trials; foreign exchange fluctuations; manufacturing, customs, shipment and storage requirements; cultural differences in medical practice and clinical research; and the risk that patient populations in such trials are not considered representative as compared to patient populations in the United States and other markets. A Breakthrough Therapy designation by the FDA may not be granted to any of our drug candidates, and even if granted, may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our drug candidates will receive regulatory approval. We intend to seek Breakthrough Therapy designation in the United States for some of our drug candidates, including savolitinib in patients with papillary renal cell carcinoma, non-small cell lung cancer and gastric cancer, sulfatinib in patients with neuroendocrine tumors and possibly epitinib in patients with non-small cell lung cancer with brain metastasis. A Breakthrough Therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs that have been designated as Breakthrough Therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of 22

23 patients placed in ineffective control regimens. Drugs designated as Breakthrough Therapies by the FDA are also eligible for accelerated approval. Designation as a Breakthrough Therapy is within the discretion of the FDA. Accordingly, even if we believe one of our drug candidates meets the criteria for designation as a Breakthrough Therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy designation for a drug candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our drug candidates qualify as Breakthrough Therapies, the FDA may later decide that the drugs no longer meet the conditions for qualification. If we are unable to obtain and/or maintain CFDA approval for our drug candidates to be eligible for an expedited registration pathway, the time and cost we incur to obtain regulatory approvals may increase. Even if we receive such approvals, they may not lead to a faster development, review or approval process. Under the Special Examination and Approval of the Registration of New Drugs provisions, the CFDA may grant green-channel approval to (i) active ingredients and their preparations extracted from plants, animals and minerals, and newly discovered medical materials and their preparations that have not been sold in the China market, (ii) chemical drugs and their preparations and biological products that have not been approved for sale at its origin country or abroad, (iii) new drugs with obvious clinical treatment advantages for diseases such as AIDS, therioma, and rare diseases, and (iv) new drugs for diseases that have not been treated effectively. We have achieved green-channel approval from the CFDA for savolitinib, fruquintinib, sulfatinib, epitinib and theliatinib. We anticipate that we may seek a greenchannel development pathway for certain of our other drug candidates and indications. If granted, the green-channel will enable us to establish streamlined communication with the relevant review panel of the CFDA, thus improving the efficiency of new drug approval. A failure to obtain and/or maintain green-channel approval or any other form of expedited development, review or approval for our drug candidates would result in a longer time period to commercialization of such drug candidate, could increase the cost of development of such drug candidate and could harm our competitive position in the marketplace. In addition, even if we obtain green-channel approval, there is no guarantee that we will experience a faster development process, review or approval compared to non-accelerated registration pathways or that a drug candidate will ultimately be approved for sale. Even if we receive regulatory approval for any of our drug candidates, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. If the FDA, CFDA or a comparable regulatory authority approves any of our drug candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the drug will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current good manufacturing practices, or GMPs, and GCPs. Any regulatory approvals that we receive for our drug candidates may also be subject to limitations on the approved indicated uses for which the drug may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the drug. In addition, regulatory policies may change or additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our drug candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able 23

24 to maintain regulatory compliance, we may lose any regulatory approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability. We may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with any of our drugs that receive regulatory approval. Once a drug is approved by the FDA, CFDA or a comparable regulatory authority for marketing, it is possible that there could be a subsequent discovery of previously unknown problems with the drug, including problems with third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements. If any of the foregoing occurs with respect to our drug products, it may result in, among other things: restrictions on the marketing or manufacturing of the drug, withdrawal of the drug from the market, or drug recalls; fines, warning letters or holds on clinical trials; refusal by the FDA, CFDA or comparable regulatory authority to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of drug license approvals; drug seizure or detention, or refusal to permit the import or export of drugs; and injunctions or the imposition of civil or criminal penalties. Any government investigation of alleged violations of law could require us to expend significant time and resources and could generate negative publicity. If we or our collaborators are not able to maintain regulatory compliance, regulatory approval that has been obtained may be lost and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations. The incidence and prevalence for target patient populations of our drug candidates are based on estimates and third-party sources. If the market opportunities for our drug candidates are smaller than we estimate or if any approval that we obtain is based on a narrower definition of the patient population, our revenue and ability to achieve profitability will be adversely affected, possibly materially. Periodically, we make estimates regarding the incidence and prevalence of target patient populations for particular diseases based on various third-party sources and internally generated analysis and use such estimates in making decisions regarding our drug development strategy, including determining indications on which to focus in pre-clinical or clinical trials. These estimates may be inaccurate or based on imprecise data. For example, the total addressable market opportunity will depend on, among other things, their acceptance by the medical community and patient access, drug pricing and reimbursement. The number of patients in the addressable markets may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our drugs, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business. Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel. We are highly dependent on the expertise of the members of our research and development team, as well as the other principal members of our management, including Christian Hogg, our Chief Executive Officer and director, and Weiguo Su, Ph.D., our Chief Scientific Officer and director. Although we have entered into employment agreements with our executive officers, each of them may terminate their 24

25 employment with us at any time with three months prior written notice. We do not maintain key person insurance for any of our executives or other employees. Recruiting and retaining qualified management, scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize drugs. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Failure to succeed in clinical trials may make it more challenging to recruit and retain qualified scientific personnel. Risks Related to Our Commercial Platform As a significant portion of our Commercial Platform business, which consists of our Prescription Drugs and Consumer Health divisions, is conducted through joint ventures, we are largely dependent on the success of our joint ventures and our receipt of dividends or other payments from our joint ventures for cash to fund our operations. We are party to joint venture agreements with Shanghai Pharmaceuticals and Guangzhou Baiyunshan, relating to our non-consolidated joint ventures, which together form part of our Commercial Platform business. Our equity in the earnings of these non-consolidated joint ventures was $26.3 million, $70.5 million and $38.2 million for the years ended December 31, 2015, 2016 and 2017, respectively, as recorded in our consolidated financial statements. Furthermore, we have consolidated joint ventures with each of Sinopharm and Hain Celestial which accounted for substantially all of our Commercial Platform s consolidated revenue for the years ended December 31, 2015, 2016 and As a result, our ability to fund our operations and pay our expenses or to make future dividend payments, if any, is largely dependent on the earnings of our joint ventures and the payment of those earnings to us in the form of dividends. Payments to us by our joint ventures will be contingent upon our joint ventures earnings and other business considerations and may be subject to statutory or contractual restrictions. Each joint venture s ability to distribute dividends to us is subject to approval by their respective boards of directors, which in the case of Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan are comprised of an equal number of representatives from each party. Operationally, our joint venture partners have certain responsibilities and/or certain rights to exercise control or influence over operations and decision-making under the joint venture arrangements. Therefore, the success of our joint ventures depends on the efforts and abilities of our joint venture parties to varying degrees. For example, we share the ability to appoint the general manager of our joint venture with Guangzhou Baiyunshan, with each of us having a rotating four-year right, and therefore, our ability to manage the day-to-day operations of this joint venture is more limited. On the other hand, we appoint the general managers of Hutchison Sinopharm and Shanghai Hutchison Pharmaceuticals pursuant to the respective joint venture agreements governing these entities and therefore oversee the day-to-day management of these joint ventures. However, we still rely on our joint venture partners Sinopharm and Shanghai Pharmaceuticals to provide certain distribution and logistics services. See Risks Related to our Dependence on Third Parties Joint ventures form an important part of our Commercial Platform business, and our ability to manage and develop the businesses conducted by these joint ventures depends in part on our relationship with our joint venture partners for more information. 25

26 We intend to use our Commercial Platform s Prescription Drugs business to commercialize our internally developed drug candidates, but we may not be successful in adapting this business to successfully manufacture, sell and market our drug candidates if and when they are approved, and we may not be able to generate any revenue from such products. Our Prescription Drugs business is operated by our Shanghai Hutchison Pharmaceuticals and Hutchison Sinopharm joint ventures and currently has a manufacturing, sales and marketing infrastructure in China. If our drug candidates are approved, we intend to leverage our Prescription Drugs business to commercialize such drug candidates; however, to do so, we must adapt our Prescription Drugs business to cater to oncology and/or immunology drug sales to achieve commercial success for any approved drug candidate in these areas. In the future, we may need to expand the sales and marketing team of these joint ventures or refocus their activities to some of our drug candidates if and when they are approved. There are risks involved with adapting our current Prescription Drugs business. For example, recruiting and/or training a sales force in new therapeutic areas is time consuming and could delay any drug launch. Factors that may inhibit our efforts to commercialize our drug candidates through our Prescription Drugs business include: our joint ventures inability to recruit and retain adequate numbers of effective sales and marketing personnel; the inability of our joint ventures sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future drugs; and the lack of complementary drugs to be offered by our joint ventures sales personnel, which may put our joint ventures at a competitive disadvantage relative to companies with more extensive product lines. In such case, our business, results of operations, financial condition and prospects will be materially and adversely affected. Our Commercial Platform faces substantial competition. Our Commercial Platform s Prescription Drugs business competes in the pharmaceutical industry in China, which is characterized by a number of established, large pharmaceutical companies, as well as some smaller emerging pharmaceutical companies. Our Prescription Drugs business competes with pharmaceutical companies engaged in the development, production, marketing or sales of prescription drugs, in particular cardiovascular drugs. The identities of the key competitors with respect to our Prescription Drugs business vary by product and, in certain cases, competitors have greater financial resources than us and may elect to focus these resources on developing, importing or in-licensing and marketing products in the PRC that are substitutes for our products and may have broader sales and marketing infrastructure with which to do so. Our Commercial Platform s Consumer Health business also competes in a highly fragmented market in Asia. The products sold through our Commercial Platform, which may include our drug candidates if they receive regulatory approval, may compete against products that have lower prices, superior performance, greater ease of administration or other advantages compared to our products. In some circumstances, price competition may drive our competitors to conduct illegal manufacturing processes to lower their manufacturing costs. Increased competition may result in price reductions, reduced margins and loss of market share, whether achieved by either legal or illegal means, any of which could materially and adversely affect our profit margins. We and our joint ventures may not be able to compete effectively against current and future competitors. 26

27 If we are not able to maintain and enhance brand recognition of the Commercial Platform s products to maintain its competitive advantage, our reputation, business and operating results may be harmed. We believe that market awareness of the products sold through our Commercial Platform, which include our joint ventures branded products, such as Baiyunshan and Shang Yao, and the brands of thirdparty products which are distributed through our joint ventures, such as AstraZeneca s Seroquel, has contributed significantly to the success of our Commercial Platform. We also believe that maintaining and enhancing such brands is critical to maintaining our competitive advantage. Although the sales and marketing staff of our Commercial Platform will continue to further promote such brands to remain competitive, they may not be successful. If our joint ventures are unable to further enhance brand recognition and increase awareness of their products, or if they are compelled to incur excessive marketing and promotion expenses in order to maintain brand awareness, our business and results of operations may be materially and adversely affected. Furthermore, our results of operations could be adversely affected if the Baiyunshan and Shang Yao brands, or the brands of any other products, or our reputation, are impaired by certain actions taken by our joint venture partners, distributors, competitors or relevant regulatory authorities. Reimbursement may not be available for the products currently sold through our Commercial Platform or our drug candidates in China, the United States or other countries, which could diminish our sales or affect our profitability. The regulations that govern pricing and reimbursement for pharmaceuticals vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after regulatory approval is granted. In some foreign markets, pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. Furthermore, once marketed and sold, government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. Adverse pricing reimbursement levels may hinder market acceptance of products sold by our Commercial Platform or drug candidates. In China, for example, the Ministry of Human Resources and Social Security of the PRC or provincial or local human resources and social security authorities, together with other government authorities, review the inclusion or removal of drugs from the PRC s National Medical Insurance Catalogue or provincial or local medical insurance catalogues for the National Medical Insurance Program every other year, and the tier under which a drug will be classified, both of which affect the amounts reimbursable to program participants for their purchases of those medicines. These determinations are made based on a number of factors, including price and efficacy. Depending on the tier under which a drug is classified in the provincial medicine catalogue, a National Medical Insurance Program participant residing in that province can be reimbursed for the full cost of Tier 1 medicine and for the majority of the cost of a Tier 2 medicine. In some instances, if the price range designated by the local or provincial government decreases, it may adversely affect our business and could reduce our total revenue, and if our revenue falls below production costs, we may stop manufacturing certain products. In addition, in order to access certain local or provincial-level markets, our joint ventures are periodically required to enter into competitive bidding processes for She Xiang Bao Xin pills (the best-selling product of our Shanghai Hutchison Pharmaceuticals joint venture), Fu Fang Dan Shen tablets (the best-selling product of our Hutchison Baiyunshan joint venture) and other products with a pre-defined price range. The competitive bidding in effect sets price ceilings for those products, thereby limiting our profitability. In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs which may affect reimbursement rates of our drug candidates if approved. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the Affordable Care Act, was passed, which substantially changes the way health care is financed by both governmental and private insurers. The Affordable Care Act, among other things, subjects biologic products to potential competition by lower-cost biosimilars and establishes annual 27

28 fees and taxes on manufacturers of certain branded prescription drugs. It also establishes a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturer s outpatient drugs to be covered under Medicare Part D. In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. Modifications to or repeal of all or certain provisions of the Healthcare Reform Act are expected as a result of the outcome of the 2016 presidential election and Republicans maintaining control of Congress, consistent with statements made by President Donald Trump and members of Congress during the presidential campaign and following the election. We cannot predict the ultimate content, timing or effect of any changes to the Healthcare Reform Act or other federal and state reform efforts. There is no assurance that federal or state health care reform will not adversely affect our future business and financial results. We expect that additional U.S. state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our drug candidates or additional pricing pressures. We expect that the pharmaceutical industry will experience pricing pressures due to the increasing influence of managed care (and related implementation of managed care strategies to control utilization), additional federal and state legislative and regulatory proposals to regulate pricing of drugs, limit coverage of drugs or reduce reimbursement for drugs, public scrutiny and the Trump administration s agenda to control the price of pharmaceuticals through government negotiations of drug prices in Medicare Part D and importation of cheaper products from abroad. Moreover, eligibility for reimbursement in the United States does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim U.S. reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by U.S. government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors in the United States often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both governmentfunded and private payors for any approved drugs that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize drugs and our overall financial condition. Sales of products sold by our Prescription Drugs business rely on the ability to win tender bids for the medicine purchases of hospitals in China. Our Commercial Platform s Prescription Drugs business markets to hospitals in China who may make bulk purchases of a medicine only if that medicine is selected under a government-administered tender process. Periodically, a bidding process is organized on a provincial or municipal basis. Whether a drug manufacturer is invited to participate in the tender depends on the level of interest that hospitals have in purchasing this drug. The interest of a hospital in a medicine is evidenced by: the inclusion of this medicine on the hospital s formulary, which establishes the scope of drug physicians at this hospital may prescribe to their patients, and the willingness of physicians at this hospital to prescribe a particular drug to their patients. We believe that effective marketing efforts are critical in making and keeping hospitals interested in purchasing the Prescription Drugs sold through our Commercial Platform so that we and our joint 28

29 ventures are invited to submit the products to the tender. Even if we and our joint ventures are invited to do so, competitors may be able to substantially reduce the price of their products or services. If competitors are able to offer lower prices, our and our joint ventures ability to win tender bids during the hospital tender process will be materially affected, and could reduce our total revenue or decrease our profit. Counterfeit products in China could negatively impact our revenue, brand reputation, business and results of operations. Our Commercial Platform s products are subject to competition from counterfeit products, especially counterfeit pharmaceuticals which are manufactured without proper licenses or approvals and are fraudulently mislabeled with respect to their content and/or manufacturer. Counterfeiters may illegally manufacture and market products under our or our joint venture s brand names, the brand names of the third-party products we or they sell, or those of our or their competitors. Counterfeit pharmaceuticals are generally sold at lower prices than the authentic products due to their low production costs, and in some cases are very similar in appearance to the authentic products. Counterfeit pharmaceuticals may or may not have the same chemical content as their authentic counterparts. If counterfeit pharmaceuticals illegally sold under our or our joint ventures brand names or the brand names of third-party products we or they sell result in adverse side effects to consumers, we or our joint ventures may be associated with any negative publicity resulting from such incidents. In addition, consumers may buy counterfeit pharmaceuticals that are in direct competition with the products sold through our Commercial Platform, which could have an adverse impact on our revenue, business and results of operations. The proliferation of counterfeit pharmaceuticals in China and globally may grow in the future. Any such increase in the sales and production of counterfeit pharmaceuticals in China, or the technological capabilities of the counterfeiters, could negatively impact our revenue, brand reputation, business and results of operations. Pharmaceutical companies in China are required to comply with extensive regulations and hold a number of permits and licenses to carry on their business. Our and our joint ventures ability to obtain and maintain these regulatory approvals is uncertain, and future government regulation may place additional burdens on the Commercial Platform business. The pharmaceutical industry in China is subject to extensive government regulation and supervision. The regulatory framework addresses all aspects of operating in the pharmaceutical industry, including approval, production, distribution, advertising, licensing and certification requirements and procedures, periodic renewal and reassessment processes, registration of new drugs and environmental protection. Violation of applicable laws and regulations may materially and adversely affect our business. In order to manufacture and distribute pharmaceutical products in China, we and our joint ventures are required to: obtain a pharmaceutical manufacturing permit and GMP certificate for each production facility from the relevant food and drug administrative authority; obtain a drug registration certificate, which includes a drug approval number, from the CFDA for each drug manufactured by us; obtain a pharmaceutical distribution permit and good supply practice, or GSP, certificate from the CFDA; and renew the pharmaceutical manufacturing permits, the pharmaceutical distribution permits, drug registration certificates, GMP certificates and GSP certificates, among other requirements. If we or our joint ventures are unable to obtain or renew such permits or any other permits or licenses required for our or their operations, we will not be able to engage in the manufacture and distribution of our products and our business may be adversely affected. 29

30 The regulatory framework regarding the pharmaceutical industry in China is subject to change and amendment from time to time. Any such change or amendment could materially and adversely impact our business, financial condition and results of operations. The PRC government has introduced various reforms to the Chinese healthcare system in recent years and may continue to do so, with an overall objective to expand basic medical insurance coverage and improve the quality and reliability of healthcare services. The specific regulatory changes under the reform still remain uncertain. The implementing measures to be issued may not be sufficiently effective to achieve the stated goals, and as a result, we may not be able to benefit from such reform to the level we expect, if at all. Moreover, the reform could give rise to regulatory developments, such as more burdensome administrative procedures, which may have an adverse effect on our business and prospects. For further information regarding government regulation in China and other jurisdictions, see Item 4.B. Business Overview Regulation Government Regulation of Pharmaceutical Product Development and Approval, Business Overview Regulation Coverage and Reimbursement and Business Overview Regulation Other Healthcare Laws. Rapid changes in the pharmaceutical industry may render our Commercial Platform s current products or our drug candidates obsolete. Future technological improvements by our competitors and continual product developments in the pharmaceutical market may render our and our joint ventures existing products, our or their third-party licensed products or our drug candidates obsolete or affect our Commercial Platform s viability and competitiveness. Therefore, our Commercial Platform s future success will largely depend on our and our joint ventures ability to: improve existing products; develop innovative drug candidates; diversify the product and drug candidate portfolio; license diverse third-party products; and develop new and competitively priced products which meet the requirements of the constantly changing market. If we or our joint ventures fail to respond to this environment by improving our Commercial Platform s existing products, licensing new third-party products or developing new drug candidates in a timely fashion, or if such new or improved products do not achieve adequate market acceptance, our business and profitability may be materially and adversely affected. Our Commercial Platform s principal products involve the cultivation or sourcing of key raw materials including botanical products, and any quality control or supply failure or price fluctuations could adversely affect our Commercial Platform s ability to manufacture our products and/or could materially and adversely affect our operating results. The key raw materials used in the manufacturing process of certain of our Commercial Platform s principal products are medicinal herbs whose properties are related to the regions and climatic conditions in which they are grown. Access to quality raw materials and products necessary for the manufacture of our Commercial Platform products is not guaranteed. We rely on a combination of materials grown by our or our joint ventures entities and materials sourced from third-party growers and suppliers. The availability, quality and prices of these raw materials are dependent on and closely affected by weather conditions and other seasonal factors which have an impact on the yields of the harvests each year. The quality, in some instances, also depends on the operations of third-party growers or suppliers. There is a risk that such growers or suppliers sell or attempt to sell us or our joint ventures raw materials which are not authentic. If 30

31 there is any supply interruption for an indeterminate period of time, our joint ventures may not be able to identify and obtain alternative supplies that comply with our quality standards in a timely manner. Any supply disruption could adversely affect our ability to satisfy demand for our products, and materially and adversely affect our product sales and operating results. Moreover, any use by us or our joint ventures of unauthentic materials illegally sold to us by third-party growers or suppliers in our or our joint ventures products may result in adverse side effects to the consumers, negative publicity, or product liability claims against us or our joint ventures, any of which may materially and adversely affect our operating results. The prices of necessary raw materials and products may be subject to price fluctuations according to market conditions, and any sudden increases in demand in the case of a widespread illness such as SARS, MERS or avian flu may impact the costs of production. For example, the market price of Sanqi, one of the main natural raw materials in Hutchison Baiyunshan s Fu Fang Dan Shen tablets, fluctuated significantly between 2009 and Our Commercial Platform sources Sanqi and other necessary raw materials on a purchase order basis and does not have long-term supply contracts in place so that it can manage inventory levels to reduce its risk to price fluctuations; however, we cannot guarantee that we or our joint ventures will be successful. Raw material price fluctuations could increase the cost to manufacture our Commercial Platform s products and adversely affect our operating results. Adverse publicity associated with our company, our joint ventures or our or their products or third-party licensed products or similar products manufactured by our competitors could have a material adverse effect on our results of operations. Sales of the Commercial Platform s products are highly dependent upon market perceptions of the safety and quality of our and our joint ventures products and the third-party products we and they distribute. Concerns over the safety of biopharmaceutical products manufactured in China could have an adverse effect on the reputation of our industry and the sale of such products, including products manufactured or distributed by us and our joint ventures. We could be adversely affected if any of our or our joint ventures products, third-party licensed products or any similar products manufactured by other companies prove to be, or are alleged to be, harmful to patients. Any negative publicity associated with severe adverse reactions or other adverse effects resulting from patients use or misuse of our and our joint ventures products or any similar products manufactured by other companies could also have a material adverse impact on our results of operations. We and our joint ventures have not, to date, experienced any significant quality control or safety problems. If in the future we or our joint ventures become involved in incidents of the type described above, such problems could severely and adversely impact our financial position and reputation. We are dependent on our joint ventures production facilities in Shanghai, Guangzhou and Bozhou, China for the manufacture of our principal Commercial Platform products. The principal products sold by our Commercial Platform are mainly produced or expected to be produced at our joint ventures manufacturing facilities in Shanghai, Guangzhou and Bozhou, China. A significant disruption at those facilities, even on a short-term basis, could impair our joint ventures ability to timely produce and ship products, which could have a material adverse effect on our business, financial position and results of operations. Our joint ventures manufacturing operations are vulnerable to interruption and damage from natural and other types of disasters, including earthquake, fire, floods, environmental accidents, power loss, communications failures and similar events. If any disaster were to occur, our ability to operate our or our joint ventures business at these facilities would be materially impaired. In addition, the nature of our production and research activities could cause significant delays in our programs and make it difficult for us to recover from a disaster. We and our joint ventures maintain insurance for business interruptions to 31

32 cover some of our potential losses; however, such disasters could still disrupt our operations and thereby result in substantial costs and diversion of resources. In addition, our and our joint ventures production process requires a continuous supply of electricity. We and they have encountered power shortages historically due to restricted power supply to industrial users during summers when the usage of electricity is high and supply is limited or as a result of damage to the electricity supply network. Because the duration of those power shortages was brief, they had no material impact on our or their operations. Interruptions of electricity supply could result in lengthy production shutdowns, increased costs associated with restarting production and the loss of production in progress. Any major suspension or termination of electricity or other unexpected business interruptions could have a material adverse impact on our business, financial condition and results of operations. Risks Related to our Dependence on Third Parties Disagreements with our current or future collaboration partners, or the termination of any collaboration arrangement, could cause delays in our product development and materially and adversely affect our business. Our collaborations with AstraZeneca, Eli Lilly and Nestlé Health Science and any future collaborations that we enter into may not be successful. Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable drug candidate and, in some cases, termination of the collaboration arrangement. Because, among other things, we are much smaller than our collaboration partners and because they or their affiliates may sell competing products, our interests may not always be aligned. This may result in potential conflicts between our collaborators and us on matters that we may not be able to resolve on favorable terms or at all. Collaborations with pharmaceutical or biotechnology companies and other third parties, including our existing agreements with AstraZeneca, Eli Lilly and Nestlé Health Science, are often terminable by the other party for any reason with certain advance notice. Any such termination or expiration would adversely affect us financially and could harm our business reputation. For instance, in the event one of the strategic alliances with a current collaborator is terminated, we may require significant time and resources to secure a new collaboration partner, if we are able to secure such an arrangement at all. As noted in the following risk factor, establishing new collaboration arrangements can be challenging and time-consuming. The loss of existing or future collaboration arrangements would not only delay or potentially terminate the possible development or commercialization of products we may derive from our technologies, but it may also delay or terminate our ability to test specific target candidates. We rely on our collaborations with third parties for certain of our drug development activities, and, if we are unable to establish new collaborations when desired on commercially attractive terms or at all, we may have to alter our development and commercialization plans. Certain of our drug development programs and the potential commercialization of certain drug candidates rely on collaborations with AstraZeneca, Eli Lilly and Nestlé Health Science. In the future, we may decide to collaborate with additional pharmaceutical and biotechnology companies for the development and potential commercialization of our other drug candidates. We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for collaboration will depend, among other things, upon our assessment of the collaborator s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA, CFDA or similar regulatory authorities outside the United States and China, the potential market for the subject drug candidate, the costs and complexities of manufacturing and delivering such drug candidate to patients, the potential of competing drugs, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge 32

33 to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative drug candidates or technologies for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with us for our drug candidate. The terms of any additional collaboration or other arrangements that we may establish may not be favorable to us. We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. We may not be able to negotiate additional collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the drug candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our drug candidates or bring them to market and generate drug revenue. Further development and commercialization of our own drug candidates will depend, in part, on strategic alliances with our collaborators. If our collaborators do not diligently pursue product development efforts, impeding our ability to collect milestone and royalty payments, our progress may be delayed and our revenue may be deferred. We rely and expect to continue to rely, to some extent, on our collaborators to provide funding in support of our own independent research and pre-clinical and clinical testing. We do not currently possess the financial resources necessary to fully develop and commercialize each of our drug candidates or the resources or capabilities to complete the lengthy regulatory approval processes that may be required for our drug candidates. Therefore, we rely and plan to continue to rely on strategic alliances to financially help us develop and commercialize certain of our drug candidates. As a result, our success depends, in part, on our ability to collect milestone and royalty payments from our existing collaborators, AstraZeneca, Eli Lilly, Nestlé Health Science and potential new collaborators. To the extent our collaborators do not aggressively pursue drug candidates for which we are entitled to such payments or pursue such drug candidates ineffectively, we will fail to realize these significant revenue streams, which could have an adverse effect on our business and future prospects. If the alliances we currently have with AstraZeneca, Eli Lilly and Nestlé Health Science, or future collaborators with whom we may engage, are unable or unwilling to advance our programs, or if they do not diligently pursue product development and product approval, this may slow our progress and defer our revenue. Any such failure would have an adverse effect on our ability to collect key revenue streams and, for this reason, would adversely impact our business, financial position and prospects. Our collaborators may sub-license or abandon drug candidates or we may have disagreements with our collaborators, which would cause associated product development to slow or cease. There can be no assurance that our current strategic alliances will be successful, and we may require significant time to secure new strategic alliances because we need to effectively market the benefits of our technology to these future alliance partners, which may direct the attention and resources of our research and development personnel and management away from our primary business operations. Further, each strategic alliance arrangement will involve the negotiation of terms that may be unique to each collaborator. These business development efforts may not result in a strategic alliance or may result in unfavorable arrangements. 33

34 Under typical collaboration agreements, we would expect to receive revenue for our selective kinase inhibitors based on achievement of specific development, sales or regulatory approval milestones, as well as royalties based on a percentage of sales of the commercialized products. Achieving these milestones will depend, in part, on the efforts of our partner as well as our own. If we, or any alliance partner, fail to meet specific milestones, then the strategic alliance may be terminated, which could reduce our revenue. The third-party vendors upon whom we rely for the supply of the active pharmaceutical ingredient, drug product and drug substance used in our drug candidates are our sole source of supply, and the loss of any of these suppliers could significantly harm our business. The active pharmaceutical ingredients, or API, drug product and drug substance used in our drug candidates are supplied to us from third-party vendors. Our ability to successfully develop our drug candidates, and to ultimately supply our commercial drugs in quantities sufficient to meet the market demand, depends in part on our ability to obtain the API, drug product and drug substance for these drugs in accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing. While we do produce small amounts of API, we do not currently have arrangements in place for a redundant or second-source supply of any such API, drug product or drug substance in the event any of our current suppliers of such API, drug product and drug substance cease their operations for any reason, which may lead to an interruption in our production. For all of our drug candidates, we intend to identify and qualify additional manufacturers to provide such API, drug product and drug substance prior to submission of an NDA to the FDA and/or CFDA. We are not certain, however, that our current suppliers will be able to meet our demand for their products, either because of the nature of our agreements with those suppliers, our limited experience with those suppliers or our relative importance as a customer to those suppliers. It may be difficult for us to assess their ability to timely meet our demand in the future based on past performance. While our suppliers have generally met our demand for their products on a timely basis in the past, they may subordinate our needs in the future to their other customers. Establishing additional or replacement suppliers for the API, drug product and drug substance used in our drug candidates, if required, may not be accomplished quickly. If we are able to find a replacement supplier, such replacement supplier would need to be qualified and may require additional regulatory approval, which could result in further delay. While we seek to maintain adequate inventory of the API, drug product and drug substance used in our drug candidates, any interruption or delay in the supply of components or materials, or our inability to obtain such API, drug product and drug substance from alternate sources at acceptable prices in a timely manner could impede, delay, limit or prevent our development efforts, which could harm our business, results of operations, financial condition and prospects. We and our collaborators rely, and expect to continue to rely, on third parties to conduct certain of our clinical trials for our drug candidates. If these third parties do not successfully carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our drug candidates and our business could be harmed. We do not have the ability to independently conduct large-scale clinical trials. We and our collaboration partners rely, and expect to continue to rely, on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct or otherwise support certain clinical trials for our drug candidates. Nevertheless, we and our collaboration partners (as applicable) will be responsible for ensuring that each clinical trial is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and reliance on CROs will not relieve us of our regulatory responsibilities. For any violations of laws and regulations during the conduct of clinical trials for our drug candidates, we could be subject to warning letters or enforcement action that may include civil penalties up to and including criminal prosecution. 34

35 Although we or our collaboration partners design the clinical trials for our drug candidates, CROs conduct most of the clinical trials. As a result, many important aspects of our development programs, including their conduct and timing, are outside of our direct control. Our reliance on third parties to conduct clinical trials results in less control over the management of data developed through clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may: have staffing difficulties; fail to comply with contractual obligations; experience regulatory compliance issues; undergo changes in priorities or become financially distressed; or form relationships with other entities, some of which may be our competitors. These factors may materially and adversely affect the willingness or ability of third parties to conduct our and our collaboration partners clinical trials and may subject us or them to unexpected cost increases that are beyond our or their control. If any of our and our collaboration partners relationships with these third-party CROs terminate, we or they may not be able to enter into arrangements with alternative CROs on reasonable terms or at all. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any clinical trials such CROs are associated with may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our drug candidates. As a result, we believe that our financial results and the commercial prospects for our drug candidates in the subject indication would be harmed, our costs could increase and our ability to generate revenue could be delayed. We, our collaboration partners or our CROs may fail to comply with the regulatory requirements pertaining to clinical trials, which could result in fines, adverse publicity and civil or criminal sanctions. We, our collaboration partners and our CROs are required to comply with regulations for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial patients are adequately informed of the potential risks of participating in clinical trials and their rights are protected. These regulations are enforced by the FDA, the CFDA and comparable foreign regulatory authorities for any drugs in clinical development. In the United States, the FDA regulates GCP through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we, our collaboration partners or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require additional clinical trials before approving the marketing applications for the relevant drug candidate. We cannot assure you that, upon inspection, the FDA or other applicable regulatory authority will determine that any of the future clinical trials for our drug candidates will comply with GCPs. In addition, clinical trials must be conducted with drug candidates produced under applicable GMP regulations. Our failure or the failure of our collaboration partners or CROs to comply with these regulations may require us or them to repeat clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action. We are also required to register applicable clinical trials and post certain results of completed clinical trials on a governmentsponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil sanctions. 35

36 Joint ventures form an important part of our Commercial Platform business, and our ability to manage and develop the businesses conducted by these joint ventures depends in part on our relationship with our joint venture partners. We are party to joint venture agreements with each of Shanghai Pharmaceuticals, Guangzhou Baiyunshan, Sinopharm and Hain Celestial, which together form an important part of our Commercial Platform business. Under these arrangements, our joint venture partners have certain operational responsibilities and/or certain rights to exercise control or influence over operations and decision-making. Our equity interests in these operating companies do not provide us with the ability to control actions which require shareholder approval. In addition, under the joint venture contracts for these entities, the consent of the directors nominated by our joint venture partners is required for the passing of resolutions in relation to certain matters concerning the operations of these companies. As a result, although we participate in the management, and in the case of Sinopharm and Shanghai Pharmaceuticals nominate the management and run the day-to-day operations, we may not be able to secure the consent of our joint venture partners to pursue activities or strategic objectives that are beneficial to or that facilitate our overall business strategies. With respect to Hutchison Baiyunshan, which is a jointly controlled and managed joint venture where we share the ability to appoint the general manager with our partner Guangzhou Baiyunshan, with each of us having a rotating four-year right, we rely on our relationship with our partner, and our ability to manage the day-to-day operations of this joint venture is more limited. To the extent Guangzhou Baiyunshan does not, for example, diligently perform its responsibilities with respect to any aspect of Hutchison Baiyunshan s operations, agree with or cooperate in the implementation of any plans we may have for Hutchison Baiyunshan s business in the future or take steps to ensure that Hutchison Baiyunshan is in compliance with applicable laws and regulations, our business and ability to comply with legal, regulatory and financial reporting requirements which will apply to us as a public company, as well as the results of this joint venture, could be materially and adversely affected. Furthermore, disagreements or disputes which arise between us and our joint venture partners may potentially require legal action to resolve and hinder the smooth operation of our Commercial Platform business or adversely affect our financial condition, results of operations and prospects. We and our joint ventures rely on our distributors for logistics and distribution services for our Commercial Platform business. We and our joint ventures rely on distributors to perform certain operational activities, including invoicing, logistics and delivery of the products we and they market to the end customers. Because we and our joint ventures rely on third-party distributors, we have less control than if we handled distribution logistics directly and can be adversely impacted by the actions of our distributors. Any disruption of our distribution network, including failure to renew existing distribution agreements with desired distributors, could negatively affect our ability to effectively sell our products and materially and adversely affect the business, financial condition and results of operations of us and our joint ventures. There is no assurance that the benefits currently enjoyed by virtue of our association with CK Hutchison will continue to be available. Historically, we have relied on the reputation and experience of, and support provided by, our founding shareholder, Hutchison Whampoa Limited (a wholly owned subsidiary of CK Hutchison), to advance our joint ventures and collaborations in China and elsewhere. CK Hutchison is a Hong Kong-based, multinational conglomerate with operations in over 50 countries. CK Hutchison is the ultimate parent company of Hutchison Healthcare Holdings Limited, which as of March 1, 2018, owns 60.4% of our total outstanding share capital. We believe that CK Hutchison group s reputation in China has given us an advantage in negotiating collaborations and obtaining opportunities. We also benefit from sharing certain services with the CK Hutchison group including, among others, legal and regulatory services, company secretarial support services, tax and internal audit services, shared 36

37 use of accounting software system and related services, participation in the CK Hutchison group s pension, medical and insurance plans, participation in the CK Hutchison group s procurement projects with thirdparty vendors/suppliers, other staff benefits and staff training services, company functions and activities and operation advisory and support services. We pay a management fee to an affiliate of CK Hutchison for the provision of such services. In the years ended December 31, 2015, 2016 and 2017, we paid a management fee of approximately $845,000, $874,000 and $897,000, respectively. In addition, we benefit from the fact that two retail chains affiliated with the CK Hutchison group, PARKnSHOP and Watsons, sell certain of our Commercial Platform products in their stores throughout Hong Kong and in other Asian countries. For the years ended December 31, 2015, 2016 and 2017, sales of our products to members of the CK Hutchison group amounted to $8.1 million, $9.8 million and $8.5 million, respectively. Our business also depends on certain intellectual property rights licensed to us by the CK Hutchison group. See Risks Related to Intellectual Property We and our joint ventures are dependent on trademark and other intellectual property rights licensed from others. If we lose our licenses for any of our products, we or our joint ventures may not be able to continue developing such products or may be required to change the way we market such products for more information on risks associated with such intellectual property licensed to us. There can be no assurance the CK Hutchison group will continue to provide the same benefits or support that they have provided to our business historically. Such benefit or support may no longer be available to us, in particular, if CK Hutchison s ownership interest in our company significantly decreases in the future. Other Risks and Risks Related to Doing Business in China We and our joint ventures may be exposed to liabilities under the U.S. Foreign Corrupt Practices Act, or FCPA, the Bribery Act 2010 of the Parliament of the United Kingdom, or U.K. Bribery Act, and Chinese anti-corruption laws, and any determination that we have violated these laws could have a material adverse effect on our business or our reputation. In the day-to-day conduct of our business, we and our joint ventures are in frequent contact with persons who may be considered government officials under applicable anti-corruption, anti-bribery and anti-kickback laws, and therefore, we and our joint ventures are subject to risk of violations under the FCPA, the U.K. Bribery Act, and other laws in the countries where we do business. We and our joint ventures have operations, agreements with third parties and we and our joint ventures make most of our sales in China. The PRC also strictly prohibits bribery of government officials. Our and our joint ventures activities in China create the risk of unauthorized payments or offers of payments by the directors, employees, representatives, distributors, consultants or agents of our company or our joint ventures, even though they may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our and our joint ventures employees. We have implemented and adopted policies designed by the R&D-based Pharmaceutical Association Committee, an industry association representing 40 global biopharmaceutical companies, to ensure compliance by us and our joint ventures and our and their directors, officers, employees, representatives, distributors, consultants and agents with the anti-corruption laws and regulations. We cannot assure you, however, that our existing safeguards are sufficient or that our or our joint ventures directors, officers, employees, representatives, distributors, consultants and agents have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our business partners have not engaged and will not engage in conduct that could materially affect their ability to perform their contractual obligations to us or even result in our being held liable for such conduct. Violations of the FCPA, the U.K. Bribery Act or Chinese anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our business, reputation financial condition, cash flows and results of operations. 37

38 Ensuring that our and our joint ventures future business arrangements with third parties comply with applicable laws could also involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our or our joint ventures operations were found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment and exclusion from government funded healthcare programs, any of which could substantially disrupt our operations. If the physicians, hospitals or other providers or entities with whom we and our joint ventures do business are found not to be in compliance with applicable laws, they may also be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. If we or our joint ventures fail to comply with environmental, health and safety laws and regulations, we or they could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business. We and our joint ventures are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemical materials. Our operations also produce hazardous waste products. We and our joint ventures are therefore subject to PRC laws and regulations concerning the discharge of waste water, gaseous waste and solid waste during our manufacturing processes. We and our joint ventures are required to establish and maintain facilities to dispose of waste and report the volume of waste to the relevant government authorities, which conduct scheduled or unscheduled inspections of our facilities and treatment of such discharge. We and our joint ventures may not at all times comply fully with environmental regulations. Any violation of these regulations may result in substantial fines, criminal sanctions, revocations of operating permits, shutdown of our facilities and obligation to take corrective measures. We and our joint ventures generally contract with third parties for the disposal of these materials and waste. We and our joint ventures cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from the use of hazardous materials, we and/or our joint ventures could be held liable for any resulting damages, and any liability could exceed our resources. We and/or our joint ventures also could incur significant costs associated with civil or criminal fines and penalties. Although we and our joint ventures maintain workers compensation insurance to cover costs and expenses incurred due to on-the-job injuries to our employees and third-party liability insurance for injuries caused by unexpected seepage, pollution or contamination, this insurance may not provide adequate coverage against potential liabilities. Furthermore, the PRC government may take steps towards the adoption of more stringent environmental regulations. Due to the possibility of unanticipated regulatory or other developments, the amount and timing of future environmental expenditures may vary substantially from those currently anticipated. If there is any unanticipated change in the environmental regulations, we and our joint ventures may need to incur substantial capital expenditures to install, replace, upgrade or supplement our equipment or make operational changes to limit any adverse impact or potential adverse impact on the environment in order to comply with new environmental protection laws and regulations. If such costs become prohibitively expensive, we may be forced to cease certain aspects of our or our joint ventures business operations. Product liability claims or lawsuits could cause us or our joint ventures to incur substantial liabilities. We and our joint ventures face an inherent risk of product liability exposure related to the use of our drug candidates in clinical trials, sales of our or our joint ventures products or the products we or they license from third parties through our Commercial Platform. If we and our joint ventures cannot 38

39 successfully defend against claims that the use of such drug candidates in our clinical trials or any products sold through our Commercial Platform, including any of our drug candidates which receive regulatory approval, caused injuries, we and our joint ventures could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in: decreased demand for any products sold through our Commercial Platform; significant negative media attention and reputational damage; withdrawal of clinical trial participants; significant costs to defend the related litigation; substantial monetary awards to trial participants or patients; loss of revenue; and the inability to commercialize any drug candidates that we may develop. Existing PRC laws and regulations do not require us or our joint ventures to have, nor do we or they, maintain liability insurance to cover product liability claims. We and our joint ventures do not have business liability, or in particular, product liability for each of our drug candidates or certain of our or their products. Any litigation might result in substantial costs and diversion of resources. While we and our joint ventures maintain liability insurance for certain clinical trials, this insurance may not fully cover our potential liabilities. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of products that we or our collaborators develop. We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively. We are heavily dependent on critical, complex and interdependent information technology systems, including internet-based systems, to support our business processes. Our information technology system security is continuously reviewed, maintained and upgraded in response to possible security breach incidents. Despite the implementation of these measures, our information technology systems and those of third parties with which we contract are vulnerable to damage from external or internal security incidents, breakdowns, malicious intrusions, cybercrimes, including State-sponsored cybercrimes, malware, misplaced or lost data, programming or human errors or other similar events. System failures, accidents or security breaches could cause interruptions in our operations and could result in inappropriately accessed, tampered with, modified or stolen scientific data or a material disruption of our clinical activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. Such event could significantly harm our Innovation Platform s operations, including resulting in the loss of clinical trial data which could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Such events could also lead to the loss of important information such as trade secrets or other intellectual property and could accelerate the development or manufacturing of competing products by third parties. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our research and development programs and the development of our drug candidates could be delayed. The PRC s economic, political and social conditions, as well as governmental policies, could affect the business environment and financial markets in China, our ability to operate our business, our liquidity and our access to capital. Substantially all of our and our joint ventures business operations are conducted in China. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree 39

40 to economic, political and legal developments in China. China s economy differs from the economies of developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth in the past 30 years, growth has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may have a negative effect on us or our joint ventures. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us or our joint ventures. More generally, if the business environment in China deteriorates from the perspective of domestic or international investors, our or our joint ventures business in China may also be adversely affected. Uncertainties with respect to the PRC legal system and changes in laws, regulations and policies in China could materially and adversely affect us. We conduct our business primarily through our subsidiaries and joint ventures in China. PRC laws and regulations govern our and their operations in China. Our subsidiaries and joint ventures are generally subject to laws and regulations applicable to foreign investments in China, which may not sufficiently cover all of the aspects of our or their economic activities in China. In particular, some laws, particularly with respect to drug price reimbursement, are relatively new, and because of the limited volume of published judicial decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations are uncertain. Furthermore, recent regulatory reform in the China pharmaceutical industry will limit the number of distributors allowed between a manufacturer and each hospital to one, which may limit the rate of sales growth of Hutchison Sinopharm in future periods. In addition, the implementation of laws and regulations may be in part based on government policies and internal rules that are subject to the interpretation and discretion of different government agencies (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our, our collaboration partners or our joint ventures violation of these policies and rules until sometime after the violation. In addition, any litigation in China, regardless of outcome, may be protracted and result in substantial costs and diversion of resources and management attention. For further information regarding government regulation in China and other jurisdictions, see Item 4.B. Business Overview Regulation Government Regulation of Pharmaceutical Product Development and Approval PRC Regulation of Pharmaceutical Product Development and Approval, Business Overview Regulation Coverage and Reimbursement PRC Coverage and Reimbursement and Business Overview Regulation Other Healthcare Laws Other PRC Healthcare Laws. Restrictions on currency exchange may limit our ability to receive and use our revenue effectively. Substantially all of our revenue is denominated in renminbi, which currently is not a freely convertible currency. A portion of our revenue may be converted into other currencies to meet our foreign currency obligations, including, among others, payments of dividends declared, if any, in respect of our ordinary shares or ADSs. Under China s existing foreign exchange regulations, our subsidiaries and joint ventures are able to pay dividends in foreign currencies or convert renminbi into other currencies for use in operations without prior approval from the PRC State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, we cannot assure you that the PRC government will not take future measures to restrict access to foreign currencies for current account transactions. Our PRC subsidiaries and joint ventures ability to obtain foreign exchange is subject to significant foreign exchange controls and, in the case of amounts under the capital account, requires the approval of and/or registration with PRC government authorities, including the SAFE. In particular, if we finance our PRC subsidiaries or joint ventures by means of foreign debt from us or other foreign lenders, the amount is 40

41 not allowed to exceed either the cross-border financing risk weighted balance calculated based on a formula by the PBOC or the difference between the amount of total investment and the amount of the registered capital as acknowledged by the Ministry of Commerce, or MOFCOM, and the SAFE. Further, such loans must be filed with and registered with the SAFE or their local branches and the National Development and Reform Commission (if applicable). If we finance our PRC subsidiaries or joint ventures by means of additional capital contributions, the amount of these capital contributions must first be filed with the relevant government approval authority. These limitations could affect the ability of our PRC subsidiaries and joint ventures to obtain foreign exchange through debt or equity financing. Our business benefits from certain PRC government tax incentives. The expiration of, changes to, or our PRC subsidiaries/joint ventures failing to continuously meet the criteria for these incentives could have a material adverse effect on our operating results by significantly increasing our tax expenses. Certain of our PRC subsidiaries and joint ventures have been successful in their respective applications to renew the special High and New Technology Enterprise, or HNTE, status (since 2005, 2008 or 2014) and/or granted the Technological Advance Service Enterprise, or TASE, status (since 2010) by the relevant PRC authorities. Both of these statuses allow the relevant enterprise to enjoy a reduced Enterprise Income Tax, or EIT, rate at 15% on its taxable profits. The statuses are valid until the end of 2019 (for HNTE, renewal is done every three years) or 2018 (for TASE, renewal is done every three years in general) during which the relevant PRC enterprise must continue to meet the relevant criteria or else the 25% standard EIT rate will be applied from the beginning of the calendar year when the enterprise fails to meet the relevant criteria. In addition, it is unclear whether the HNTE/TASE status and tax incentives under the current policy will continue to be granted after their respective expiration dates. If the rules for such incentives are amended or the statutes are not renewed, higher EIT rates may apply resulting in increased tax burden which will impact our business, financial condition, results of operations and growth prospects. We may be treated as a resident enterprise for PRC Tax purposes under the PRC EIT Law, and our global income may therefore be subject to PRC income tax. China s EIT Law and the Regulation on the Implementation of the EIT Law, effective as of January 1, 2008, define the term de facto management bodies as bodies that substantially carry out comprehensive management and control on the business operation, employees, accounts and assets of enterprises. Under the EIT Law, an enterprise incorporated outside of China whose de facto management bodies are located in China is considered a resident enterprise and will be subject to a uniform 25% EIT rate on its global income. On April 22, 2009, China s State Administration of Taxation, or the SAT, in the Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, further specified certain criteria for the determination of what constitutes de facto management bodies. If all of these criteria are met, the relevant foreign enterprise may be regarded to have its de facto management bodies located in China and therefore be considered a resident enterprise in China. These criteria include: (i) the enterprise s day-to-day operational management is primarily exercised in China; (ii) decisions relating to the enterprise s financial and human resource matters are made or subject to approval by organizations or personnel in China; (iii) the enterprise s primary assets, accounting books and records, company seals, and board and shareholders meeting minutes are located or maintained in China; and (iv) 50% or more of voting board members or senior executives of the enterprise habitually reside in China. Although Circular 82 only applies to foreign enterprises that are majority-owned and controlled by PRC enterprises, not those owned and controlled by foreign enterprises or individuals, the determining criteria set forth in Circular 82 may be adopted by the PRC tax authorities as the test for determining whether the enterprises are PRC tax residents, regardless of whether they are majority-owned and controlled by PRC enterprises. Except for our PRC subsidiaries and joint ventures incorporated in China, we believe that none of our entities incorporated outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities, and uncertainties remain with respect to the interpretation of the term de facto management body. 41

42 If we are treated as a PRC tax resident, dividends distributed by us to our non-prc shareholders and ADS holders or any gains realized by non-prc shareholders and ADS holders from the transfer of our shares or ADSs may be subject to PRC tax. Under the EIT Law, dividends payable by a PRC enterprise to its foreign investor who is a non-prc resident enterprise, as well as gains on transfers of shares of a PRC enterprise by such a foreign investor will generally be subject to a 10% withholding tax, unless such non-prc resident enterprise s jurisdiction of tax residency has an applicable tax treaty with the PRC that provides for a reduced rate of withholding tax. If the PRC tax authorities determine that we should be considered a PRC resident enterprise for EIT purposes, any dividends payable by us to our non-prc resident enterprise shareholders or ADS holders, as well as gains realized by such investors from the transfer of our shares or ADSs may be subject to a 10% withholding tax, unless a reduced rate is available under an applicable tax treaty. Furthermore, if we are considered a PRC resident enterprise for EIT purposes, it is unclear whether our non-prc individual shareholders (including our ADS holders) would be subject to any PRC tax on dividends or gains obtained by such non-prc individual shareholders. If any PRC tax were to apply to dividends or gains realized by non-prc individuals, it would generally apply at a rate of up to 20% unless a reduced rate is available under an applicable tax treaty. If dividends payable to our non-prc resident shareholders, or gains from the transfer of our shares or ADSs by such shareholders are subject to PRC tax, the value of your investment in our shares or ADSs may decline significantly. There is uncertainty regarding the PRC withholding tax rate that will be applied to distributions from our PRC subsidiaries and joint ventures to their respective Hong Kong immediate holding companies, which could have a negative impact on our business. The EIT Law provides that a withholding tax at the rate of 10% is applicable to dividends payable by a PRC resident enterprise to investors who are non-resident enterprises (i.e., that do not have an establishment or place of business in the PRC or that have such establishment or place of business but the relevant dividend is not effectively connected with the establishment or place of business). However, pursuant to the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, or the Arrangement, withholding tax at a reduced rate of 5% may be applicable to dividends payable by PRC resident enterprises to beneficial owners of the dividends that are Hong Kong tax residents if certain requirements are met. There is uncertainty regarding whether the PRC tax authorities will consider us to be eligible to the reduced tax rate. If the Arrangement is deemed not to apply to dividends payable by our PRC subsidiaries and joint ventures to their respective Hong Kong immediate holding companies that are ultimately owned by us, the withholding tax rate applicable to us will be the statutory rate of 10% instead of 5% which may potentially impact our business, financial condition, results of operations and growth prospects. We may be treated as a resident enterprise for U.K. corporate tax purposes, and our global income may therefore be subject to U.K. corporation tax. U.K. resident companies are taxable in the United Kingdom on their worldwide profits. A company incorporated outside of the United Kingdom would be regarded as a resident if its central management and control resides in the United Kingdom. The place of central management and control generally means the place where the high-level strategic decisions of a company are made. We are an investment holding company incorporated in the Cayman Islands that is listed on the AIM market of the London Stock Exchange. Our central management and control resides in Hong Kong, and therefore we believe that we are not a U.K. resident for corporate tax purposes. However, the tax resident status of a non-resident entity could be challenged by the U.K. tax authorities. 42

43 If the U.K. tax authorities determine that we are a U.K. tax resident, our profits will be subject to U.K. Corporation Tax rate at 19.25%, subject to the potential availability of certain exemptions related to dividend income and capital gains. This may have a material adverse effect on our financial condition and results of operations. Any failure to comply with PRC regulations regarding our employee equity incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions, which could adversely affect our business, financial condition and results of operations. In February 2012, the SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly Listed Companies. Based on this regulation, PRC residents who are granted shares or share options by a company listed on an overseas stock market under its employee share option or share incentive plan are required to register with the SAFE or its local counterparts by following certain procedures. We and our employees who are PRC residents and individual beneficial owners who have been granted shares or share options have been subject to these rules due to our listing on the AIM market of the London Stock Exchange and the listing of our ADSs on the Nasdaq Global Select Market. We have registered the option schemes and the share incentive plan and will continue to assist our employees to register their share options or shares. However, any failure of our PRC individual beneficial owners and holders of share options or shares to comply with the SAFE registration requirements in the future may subject them to fines and legal sanctions and may, in rare instances, limit the ability of our PRC subsidiaries to distribute dividends to us. In addition, the SAT has issued circulars concerning employee share options or restricted shares. Under these circulars, employees working in the PRC who exercise share options, or whose restricted shares vest, will be subject to PRC individual income tax, or IIT. The PRC subsidiaries of an overseas listed company have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold IIT of those employees related to their share options or restricted shares. Although the PRC subsidiaries currently withhold IIT from the PRC employees in connection with their exercise of share options, if they fail to report and pay the tax withheld according to relevant laws, rules and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or other PRC government authorities. Risks Related to Intellectual Property If we, our joint ventures or our collaboration partners are unable to protect our or their products and drug candidates through intellectual property rights, our competitors may compete directly against us or them. Our success depends, in part, on our, our joint venture partners and our collaboration partners ability to protect our and our joint ventures and our collaboration partners products and drug candidates from competition by establishing, maintaining and enforcing our or their intellectual property rights. We, our joint ventures and our collaboration partners seek to protect the products and technology that we and they consider commercially important by filing PRC and international patent applications, relying on trade secrets or pharmaceutical regulatory protection or employing a combination of these methods. As of December 31, 2017, we had 151 issued patents, including 18 Chinese patents, 19 U.S. patents and eight European patents, 146 patent applications pending in the above major market jurisdictions, and two pending Patent Cooperation Treaty, or PCT, patent applications relating to the drug candidates of our Innovation Platform. Our collaboration partner AstraZeneca is responsible for maintaining and enforcing our intellectual property rights in relation to savolitinib. As of the same date, our joint venture Nutrition Science Partners had 24 issued patents and three pending patent applications relating to HMPL-004 and its reformulation HM Additionally, our joint ventures collectively had 119 issued patents and 10 patent applications in China and other jurisdictions relating to our Commercial Platform s products as of December 31, For more details, see Item 4.B. Business Overview Patents and Other Intellectual Property. Patents may become invalid and patent applications may not be granted for a number of 43

44 reasons, including known or unknown prior art, deficiencies in the patent application or the lack of originality of the technology. In addition, the PRC and the United States have adopted the first-to-file system under which whoever first files an invention patent application will be awarded the patent. Under the first-to-file system, third parties may be granted a patent relating to a technology which we invented. Furthermore, the terms of patents are finite. The patents we hold and patents to be issued from our currently pending patent applications generally have a twenty-year protection period starting from the date of application. We, our joint ventures and/or our collaboration partners may become involved in patent litigation against third parties to enforce our or their patent rights, to invalidate patents held by such third parties, or to defend against such claims. A court may refuse to stop the other party from using the technology at issue on the grounds that our or our joint ventures patents do not cover the third-party technology in question. Further, such third parties could counterclaim that we or our joint ventures infringe their intellectual property or that a patent we, our joint ventures or our collaboration partners have asserted against them is invalid or unenforceable. In patent litigation, defendant counterclaims challenging the validity, enforceability or scope of asserted patents are commonplace. In addition, third parties may initiate legal proceedings against us or our intellectual property to assert such challenges to our intellectual property rights. The outcome of any such proceeding is generally unpredictable. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Patents may be unenforceable if someone connected with prosecution of the patent withheld relevant information or made a misleading statement during prosecution. It is possible that prior art of which we, our joint ventures or our collaboration partners and the patent examiner were unaware during prosecution exists, which could render our or their patents invalid. Moreover, it is also possible that prior art may exist that we, our joint ventures or our collaboration partners are aware of but do not believe is relevant to our or their current or future patents, but that could nevertheless be determined to render our patents invalid. The cost to us or our joint ventures of any patent litigation or similar proceeding could be substantial, and it may consume significant management time. We and our joint ventures do not maintain insurance to cover intellectual property infringement. An adverse result in any litigation proceeding could put one or more of our or our joint ventures patents at risk of being invalidated or interpreted narrowly. If a defendant were to prevail on a legal assertion of invalidity or unenforceability of our patents covering one of our or our joint ventures products or our drug candidates, we could lose at least part, and perhaps all, of the patent protection covering such product or drug candidate. Competing drugs may also be sold in other countries in which our or our joint ventures patent coverage might not exist or be as strong. If we lose a foreign patent lawsuit, alleging our or our joint ventures infringement of a competitor s patents, we could be prevented from marketing our drugs in one or more foreign countries. Any of these outcomes would have a materially adverse effect on our business. Intellectual property and confidentiality legal regimes in China may not afford protection to the same extent as in the United States or other countries. Implementation and enforcement of PRC intellectual property laws may be deficient and ineffective. Policing unauthorized use of proprietary technology is difficult and expensive, and we or our joint ventures may need to resort to litigation to enforce or defend patents issued to us or them or to determine the enforceability, scope and validity of our proprietary rights or those of others. The experience and capabilities of PRC courts in handling intellectual property litigation varies, and outcomes are unpredictable. Further, such litigation may require a significant expenditure of cash and may divert management s attention from our or our joint ventures operations, which could harm our business, financial condition and results of operations. An adverse determination in any such litigation could materially impair our or our joint ventures intellectual property rights and may harm our business, prospects and reputation. 44

45 Developments in patent law could have a negative impact on our business. From time to time, authorities in the United States, China and other government authorities may change the standards of patentability, and any such changes could have a negative impact on our business. For example, in the United States, the Leahy-Smith America Invents Act, or the America Invents Act, which was signed into law in 2011, includes a number of significant changes to U.S. patent law. These changes include a transition from a first-to-invent system to a first-to-file system, changes to the way issued patents are challenged, and changes to the way patent applications are disputed during the examination process. As a result of these changes, patent law in the United States may favor larger and more established companies that have greater resources to devote to patent application filing and prosecution. The U.S. Patent and Trademark Office, or USPTO, has developed new and untested regulations and procedures to govern the full implementation of the America Invents Act, and many of the substantive changes to patent law associated with the America Invents Act, and, in particular, the first-to-file provisions became effective on March 16, Substantive changes to patent law associated with the America Invents Act may affect our ability to obtain patents, and if obtained, to enforce or defend them. Accordingly, it is not clear what, if any, impact the America Invents Act will have on the cost of prosecuting our or our joint ventures patent applications and our or their ability to obtain patents based on our or our joint ventures discoveries and to enforce or defend any patents that may issue from our or their patent applications, all of which could have a material adverse effect on our business. If we are unable to maintain the confidentiality of our and our joint ventures trade secrets, the business and competitive position of ourselves and our joint ventures may be harmed. In addition to the protection afforded by patents and the PRC s State Secret certification, we and our joint ventures rely upon unpatented trade secret protection, unpatented know-how and continuing technological innovation to develop and maintain our competitive position. We seek to protect our and our joint ventures proprietary technology and processes, in part, by entering into confidentiality agreements with our and their collaborators, scientific advisors, employees and consultants, and invention assignment agreements with our and their consultants and employees. We and our joint ventures may not be able to prevent the unauthorized disclosure or use of our or their technical know-how or other trade secrets by the parties to these agreements, however, despite the existence generally of confidentiality agreements and other contractual restrictions. If any of the collaborators, scientific advisors, employees and consultants who are parties to these agreements breaches or violates the terms of any of these agreements, we and our joint ventures may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a result. Enforcing a claim that a third-party illegally obtained and is using our or our joint ventures trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts in China and other jurisdictions outside the United States are sometimes less prepared or willing to protect trade secrets. Our and our joint ventures trade secrets could otherwise become known or be independently discovered by our or their competitors. For example, competitors could purchase our drugs and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. If any of our or our joint ventures trade secrets were to be lawfully obtained or independently developed by a competitor, we and our joint ventures would have no right to prevent them, or others to whom they communicate it, from using that technology or information to compete against us or our joint ventures. If our or our joint ventures trade secrets are unable to adequately protect our business against competitors drugs, our competitive position could be adversely affected, as could our business. 45

46 We and our joint ventures are dependent on trademark and other intellectual property rights licensed from others. If we lose our licenses for any of our products, we or our joint ventures may not be able to continue developing such products or may be required to change the way we market such products. We and our joint ventures are parties to licenses that give us or them rights to third-party intellectual property that are necessary or useful for our or our joint ventures businesses. In particular, the Hutchison, Chi-Med and China-MediTech brands, among others, have been licensed to us by Hutchison Whampoa Enterprises Limited, an affiliate of our majority shareholder, Hutchison Healthcare Holdings Limited. Hutchison Whampoa Enterprises Limited grants us a royalty-free, worldwide license to such brands. Hutchison Whampoa Enterprises Limited has the right to terminate the license during the 12-month period following each time the interest of Hutchison Whampoa Limited, an indirect shareholder of Hutchison Healthcare Holdings Limited, in us is reduced below 50%, 40%, 30% or 20%. Currently, Hutchison Whampoa Limited s interest in our company is less than 20%, but we do not anticipate that Hutchison Whampoa Enterprises Limited will terminate such license in the foreseeable future. In addition, the Baiyunshan brand, which is a key brand used by Hutchison Baiyunshan on its products, has been licensed to Hutchison Baiyunshan by our joint venture partner, Guangzhou Baiyunshan, for use during the 50-year joint venture period; however, Guangzhou Baiyunshan has the right to terminate the license if its interest in Hutchison Baiyunshan falls below 50%. If any such license is terminated, our or Hutchison Baiyunshan s business, and our or their positioning in the Chinese market and our financial condition, results of operations and prospects may be materially and adversely affected. In some cases, our licensors have retained the right to prosecute and defend the intellectual property rights licensed to us or our joint ventures. We depend in part on the ability of our licensors to obtain, maintain and enforce intellectual property protection for such licensed intellectual property. Such licensors may not successfully maintain their intellectual property, may determine not to pursue litigation against other companies that are infringing on such intellectual property, or may pursue litigation less aggressively than we or our joint ventures would. Without protection for the intellectual property we or our joint ventures license, other companies might be able to offer substantially identical products or branding, which could adversely affect our competitive business position and harm our business prospects. If our or our joint ventures products or drug candidates infringe the intellectual property rights of third parties, we and they may incur substantial liabilities, and we and they may be unable to sell these products. Our commercial success depends significantly on our and our joint ventures ability to operate without infringing the patents and other proprietary rights of third parties. In the PRC, invention patent applications are generally maintained in confidence until their publication 18 months from the filing date. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and invention patent applications are filed. Even after reasonable investigation, we may not know with certainty whether any third-party may have filed a patent application without our knowledge while we or our joint ventures are still developing or producing that product. While the success of pending patent applications and applicability of any of them to our or our joint ventures programs are uncertain, if asserted against us or them, we could incur substantial costs and we or they may have to: obtain licenses, which may not be available on commercially reasonable terms, if at all; redesign products or processes to avoid infringement; and stop producing products using the patents held by others, which could cause us or them to lose the use of one or more of our or their products. 46

47 To date, we and our joint ventures have not received any material claims of infringement by any third parties. If a third-party claims that we or our joint ventures infringe its proprietary rights, any of the following may occur: we or our joint ventures may have to defend litigation or administrative proceedings that may be costly whether we or they win or lose, and which could result in a substantial diversion of management resources; we or our joint ventures may become liable for substantial damages for past infringement if a court decides that our technology infringes a third-party s intellectual property rights; a court may prohibit us or our joint ventures from producing and selling our or their product(s) without a license from the holder of the intellectual property rights, which may not be available on commercially acceptable terms, if at all; and we or our joint ventures may have to reformulate product(s) so that it does not infringe the intellectual property rights of others, which may not be possible or could be very expensive and time consuming. Any costs incurred in connection with such events or the inability to sell our or our joint ventures products may have a material adverse effect on our business and results of operations. We, our joint ventures and our collaboration partners may not be able to effectively enforce our intellectual property rights throughout the world. Filing, prosecuting and defending patents on our or our joint venture s products or drug candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly in developing countries. Moreover, our, our joint ventures or our collaboration partners ability to protect and enforce our or their intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally, the patent laws of some foreign countries do not afford intellectual property protection to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, may not favor the enforcement of patents and other intellectual property rights. This could make it difficult for us or our joint ventures to stop the infringement of our or their patents or the misappropriation of our or their other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. Consequently, we may not be able to prevent third parties from practicing our or our joint ventures inventions throughout the world. Competitors may use our or our joint ventures technologies in jurisdictions where we or they have not obtained patent protection to develop their own drugs and, further, may export otherwise infringing drugs to territories where we or our joint ventures have patent protection, if our, our joint ventures or our collaboration partners ability to enforce our or their patents to stop infringing activities is inadequate. These drugs may compete with our drug candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Proceedings to enforce our or our joint ventures patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our or their efforts and resources from other aspects of our and their businesses. While we intend to protect our intellectual property rights in the major markets for our drug candidates, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our drug candidates. Furthermore, as AstraZeneca is responsible for enforcing our intellectual property rights with respect to savolitinib on our behalf, we may be unable to ensure that such rights are enforced or maintained in all jurisdictions. Accordingly, our efforts to protect the intellectual property rights of our drug candidates in such countries may be inadequate. 47

48 We and our joint ventures may be subject to damages resulting from claims that we or they, or our or their employees, have wrongfully used or disclosed alleged trade secrets of competitors or are in breach of non-competition or non-solicitation agreements with competitors. We and our joint ventures could in the future be subject to claims that we or they, or our or their employees, have inadvertently or otherwise used or disclosed alleged trade secrets or other proprietary information of former employers or competitors. Although we try to ensure that our and our joint ventures employees and consultants do not improperly use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us or our joint ventures, we or our joint ventures may in the future be subject to claims that we or they caused an employee to breach the terms of his or her non-competition or non-solicitation agreement, or that we, our joint ventures, or these individuals have, inadvertently or otherwise, used or disclosed the alleged trade secrets or other proprietary information of a former employer or competitor. Litigation may be necessary to defend against these claims. Even if we and our joint ventures are successful in defending against these claims, litigation could result in substantial costs and could be a distraction to management. If our or our joint ventures defenses to these claims fail, in addition to requiring us and them to pay monetary damages, a court could prohibit us or our joint ventures from using technologies or features that are essential to our or their products or our drug candidates, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. An inability to incorporate such technologies or features would have a material adverse effect on our business, and may prevent us from successfully commercializing our drug candidates. In addition, we or our joint ventures may lose valuable intellectual property rights or personnel as a result of such claims. Moreover, any such litigation or the threat thereof may adversely affect our or our joint ventures ability to hire employees or contract with independent sales representatives. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our drug candidates, which would have an adverse effect on our business, results of operations and financial condition. Risks Related to Our ADSs Certain shareholders own a significant percentage of our ordinary shares, which limits the ability of other shareholders to influence corporate matters. As of March 1, 2018, Hutchison Healthcare Holdings Limited owns approximately 60.4% of our ordinary shares. Accordingly, Hutchison Healthcare Holdings Limited has a significant influence over the outcome of any corporate transaction or other matter submitted to shareholders for approval and the interests of Hutchison Healthcare Holdings Limited may differ from the interests of our other shareholders. Because we are incorporated in the Cayman Islands, certain matters, such as amendments to our memorandum and articles of association, require approval of at least two-thirds of our shareholders by law subject to higher thresholds which we may set in our memorandum and articles of association. Therefore, Hutchison Healthcare Holdings Limited s approval will be required to achieve any such threshold. In addition, Hutchison Healthcare Holdings Limited will have a significant influence over the management and the strategic direction of our company. Substantial future sales or perceived potential sales of our ADSs, ordinary shares or other equity or equity-linked securities in the public market could cause the price of our ADSs to decline significantly. Sales of our ADSs, ordinary shares or other equity or equity-linked securities in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline significantly. All of our ordinary shares represented by ADSs are freely transferable by persons other than our affiliates without restriction or additional registration under the Securities Act of 1933, or the Securities Act. The ordinary shares held by our affiliates are also available for sale, subject to volume and other restrictions as applicable under Rules 144 and 701 under the Securities Act, under sales plans adopted pursuant to Rule 10b5-1 or otherwise. 48

49 We have filed with the SEC a Registration Statement on Form F-3, commonly referred to as a shelf registration, that permits us to sell any number of ADSs in a registered offering at our discretion. The shelf registration was automatically effective as of the filing date, April 3, On October 30, 2017, we completed a registered offering of 11,369,810 ADSs under the shelf registration statement, raising total gross proceeds of approximately $301.3 million. We may decide to conduct future offerings from time to time, and such sales could cause the price of our ADSs to decline significantly. We may be at an increased risk of securities class action litigation. Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant share price volatility in recent years. If we were to be sued, it could result in substantial costs and a diversion of management s attention and resources, which could harm our business. If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our business, the price of our ADSs could decline. The trading market for our ADSs will rely in part on the research and reports that industry or financial analysts publish about us or our business. We may never obtain research coverage by industry or financial analysts. If one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline. As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information publicly available to our shareholders. As a foreign private issuer we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore there may be less publicly available information about us than if we were a U.S. domestic issuer. For example, we are not subject to the proxy rules in the United States and disclosure with respect to our annual general meetings will be governed by the AIM Rules for Companies, or the AIM Rules, and Cayman Islands requirements. In addition, our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely basis when our officers, directors and principal shareholders purchase or sell our ordinary shares or ADSs. As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards. As a foreign private issuer, we are permitted to take advantage of certain provisions in the Nasdaq listing rules that allow us to follow Cayman Islands law for certain governance matters. Certain corporate governance practices in the Cayman Islands may differ significantly from corporate governance listing standards as, except for general fiduciary duties and duties of care, Cayman Islands law has no corporate governance regime which prescribes specific corporate governance standards. We intend to continue to follow Cayman Islands corporate governance practices in lieu of the corporate governance requirements of the Nasdaq Global Select Market in respect of the following: (i) the majority independent director requirement under Section 5605(b)(1) of the Nasdaq listing rules, (ii) the requirement under Section 5605(d) of the Nasdaq listing rules that a remuneration committee comprised solely of independent directors governed by a remuneration committee charter oversee executive compensation and (iii) the requirement under Section 5605(e) of the Nasdaq listing rules that director nominees be selected 49

50 or recommended for selection by either a majority of the independent directors or a nominations committee comprised solely of independent directors. Cayman Islands law does not impose a requirement that our board of directors consist of a majority of independent directors. Nor does Cayman Islands law impose specific requirements on the establishment of a remuneration committee or nominating committee or nominating process. Therefore, our shareholders may be afforded less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers. We have voluntarily complied with, and plan to continue to comply with for the foreseeable future, the principles of the U.K. Corporate Governance Code published by the U.K. Financial Reporting Council which guides certain of our other corporate governance practices. See Item 6.C. Board Practice U.K. Corporate Governance Code for more details. We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses. As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on June 30, We would lose our foreign private issuer status if, for example, more than 50% of our ordinary shares are directly or indirectly held by residents of the United States on June 30, 2018 and we fail to meet additional requirements necessary to maintain our foreign private issuer status. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms beginning on January 1, 2019, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the Nasdaq listing rules. As a U.S.-listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer. Certain audit reports included in this annual report were prepared by an auditor who is not inspected by the U.S. Public Company Accounting Oversight Board, or the PCAOB, and as such, you are deprived of the benefits of such inspection. Auditors of companies that are registered with the SEC and traded publicly in the United States, including the independent registered public accounting firm of our company, must be registered with the PCAOB, and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards. Because we have substantial operations within the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditor and the auditors of our joint ventures are not currently inspected by the PCAOB. In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the China Securities Regulatory Commission, or CSRC, and the Ministry of Finance, or MOF, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by the PCAOB, the CSRC, or the MOF in the United States and the PRC, respectively. The PCAOB continues to be in discussions with the CSRC and the MOF to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating audits and quality control procedures of any auditors operating in China, including our auditor and the auditors of 50

51 our joint ventures. As a result, investors may be deprived of the benefits of PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements. We do not currently intend to pay dividends on our securities, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of the ADSs. We have never declared or paid any dividends on our ordinary shares. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your ADSs at least in the near term, and the success of an investment in ADSs will depend upon any future appreciation in its value. Consequently, investors may need to sell all or part of their holdings of ADSs after price appreciation, which may never occur, to realize any future gains on their investment. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which our shareholders have purchased the ADSs. The market price for our ADSs may be volatile which could result in substantial loss to you. The market price of our ADSs has been volatile. From March 17, 2016 to March 1, 2018, the closing sale price of our ADSs ranged from a high of $41.14 to a low of $11.26 per ADS. The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors, including the following: announcements of competitive developments; regulatory developments affecting us, our customers or our competitors; announcements regarding litigation or administrative proceedings involving us; actual or anticipated fluctuations in our period-to-period operating results; changes in financial estimates by securities research analysts; additions or departures of our executive officers; release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs; and sales or perceived sales of additional ordinary shares or ADSs. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. For example, since August 2008, multiple exchanges in the United States and other countries and regions, including China, experienced sharp declines in response to the growing credit market crisis and the recession in the United States. As recently as July 2015, the exchanges in China experienced a sharp decline. Prolonged global capital markets volatility may affect overall investor sentiment towards our ADSs, which would also negatively affect the trading prices for our ADSs. The dual listing of our ordinary shares and the ADSs may adversely affect the liquidity and value of the ADSs. Our ordinary shares continue to be listed on the AIM market of the London Stock Exchange. The dual listing of our ordinary shares and the ADSs may dilute the liquidity of these securities in one or both markets and may adversely affect the development of an active trading market for the ADSs in the United States. The price of the ADSs could also be adversely affected by trading in our ordinary shares on the AIM market. Furthermore, our ordinary shares trade on the AIM market of the London Stock Exchange 51

52 in the form of depository interests, each of which is an electronic book-entry interest representing one of our ordinary shares. However, the ADSs are backed by physical ordinary share certificates, and the depositary for our ADS program is unable to accept depository interests into its custody in order to issue ADSs. As a result, if an ADS holder wishes to cancel its ADSs and instead hold depository interests for trading on the AIM market or vice versa, the issuance and cancellation process may be longer than if the depositary could accept such depository interests. Although our ordinary shares continue to be listed on the AIM market following our initial public offering in the United States completed in March 2016, we may decide at some point in the future to propose to our ordinary shareholders to delist our ordinary shares from the AIM market, and our ordinary shareholders may approve such delisting. We cannot predict the effect such delisting of our ordinary shares on the AIM market would have on the market price of the ADSs on the Nasdaq Global Select Market. Fluctuations in the exchange rate between the U.S. dollar and the pound sterling may increase the risk of holding the ADSs. Our share price is quoted on the AIM market of the London Stock Exchange in pence sterling, while the ADSs will trade on Nasdaq in U.S. dollars. Fluctuations in the exchange rate between the U.S. dollar and the pound sterling may result in temporary differences between the value of the ADSs and the value of our ordinary shares, which may result in heavy trading by investors seeking to exploit such differences. In addition, as a result of fluctuations in the exchange rate between the U.S. dollar and the pound sterling, the U.S. dollar equivalent of the proceeds that a holder of the ADSs would receive upon the sale in the United Kingdom of any shares withdrawn from the depositary and the U.S. dollar equivalent of any cash dividends paid in pound sterling on our shares represented by the ADSs could also decline. Fluctuations in the value of the renminbi may have a material adverse effect on your investment. The value of the renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the renminbi to the U.S. dollar, and the renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted, and the exchange rate between the renminbi and U.S. dollar remained within a narrow band. In June 2010, China s People s Bank of China, or PBOC, announced that the PRC government would increase the flexibility of the exchange rate, and thereafter allowed the renminbi to appreciate slowly against the U.S. dollar within the narrow band fixed by the PBOC. However, more recently, on August 11, 12 and 13, 2015, the PBOC significantly devalued the renminbi by fixing its price against the U.S. dollar 1.9%, 1.6%, and 1.1% lower than the previous day s value, respectively. In 2016, the renminbi further depreciated against the U.S. dollar by approximately 6.7%, and from January 1, 2017 to December 31, 2017, the renminbi appreciated against the U.S. dollar by 6.0%. Significant revaluation of the renminbi may have a material adverse effect on your investment. For example, to the extent that we need to convert U.S. dollars into renminbi for our operations, appreciation of the renminbi against the U.S. dollar would have an adverse effect on the renminbi amount we would receive from the conversion. Conversely, if we decide to convert our renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the renminbi would have a negative effect on the U.S. dollar amount available to us. In addition, appreciation or depreciation in the value of the renminbi relative to U.S. dollars would affect our financial results reported in U.S. dollar terms regardless of any underlying change in our business or results of operations. 52

53 Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert renminbi into foreign currency. Securities traded on the AIM market of the London Stock Exchange may carry a higher risk than shares traded on other exchanges and may impact the value of your investment. Our ordinary shares are currently traded on the AIM market of the London Stock Exchange. Investment in equities traded on AIM is perceived by some to carry a higher risk than an investment in equities quoted on exchanges with more stringent listing requirements, such as the New York Stock Exchange or the Nasdaq. This is because the AIM market imposes less stringent ongoing reporting requirements than those other exchanges. You should be aware that the value of our ordinary shares may be influenced by many factors, some of which may be specific to us and some of which may affect AIM-listed companies generally, including the depth and liquidity of the market, our performance, a large or small volume of trading in our ordinary shares, legislative changes and general economic, political or regulatory conditions, and that the prices may be volatile and subject to extensive fluctuations. Therefore, the market price of our ordinary shares underlying the ADSs may not reflect the underlying value of our company. The depositary for our ADSs gives us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at shareholders meetings, except in limited circumstances, which could adversely affect your interests. Under the deposit agreement for the ADSs, the depositary gives us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders meetings if you do not vote, unless: we do not wish a discretionary proxy to be given; we are aware or should reasonably be aware that there is substantial opposition as to a matter to be voted on at the meeting; or a matter to be voted on at the meeting would materially and adversely affect the rights of shareholders. The effect of this discretionary proxy is that you cannot prevent our ordinary shares underlying your ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy. Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise their rights. Holders of our ADSs do not have the same rights as our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under our memorandum and articles of association, an annual general meeting and any extraordinary general meeting at which the passing of a special resolution is to be considered may be called with not less than 21 clear days notice, and all other extraordinary general meetings may be called with not less than 14 clear days notice. When a general meeting is convened, you may not receive sufficient notice of a shareholders meeting to permit you to withdraw the ordinary shares underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, we will give the depositary notice of any such meeting and details concerning the matters to be voted upon at least 30 days in advance of the meeting date and the depositary will send a notice to you about the upcoming vote and will arrange to deliver our voting materials to you. The depositary and its agents, however, may not be able to send 53

54 voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the ordinary shares underlying your ADSs. Furthermore, the depositary will not be liable for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you request. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders meeting. You may not receive distributions on our ADSs or any value for them if such distribution is illegal or if any required government approval cannot be obtained in order to make such distribution available to you. Although we do not have any present plan to pay any dividends, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses and any applicable taxes and governmental charges. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities whose offering would require registration under the Securities Act but is not so properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not reasonably practicable to distribute certain property. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under the U.S. securities laws any offering of ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs. Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings. We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not make rights available to you unless either both the rights and any related securities are registered under the Securities Act, or the distribution of them to ADS holders is exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. If the depositary does not distribute the rights, it may, under the deposit agreement, either sell them, if possible, or allow them to lapse. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings. If we are classified as a passive foreign investment company, U.S. investors could be subject to adverse U.S. federal income tax consequences. The rules governing passive foreign investment companies, or PFICs, can have adverse effects for U.S. investors for U.S. federal income tax purposes. The tests for determining PFIC status for a taxable year depend upon the relative values of certain categories of assets and the relative amounts of certain kinds of income. As discussed in Taxation Material U.S. Federal Income Tax Considerations, we do not believe that we are currently a PFIC. Notwithstanding the foregoing, the determination of whether we are a PFIC 54

55 depends on particular facts and circumstances (such as the valuation of our assets, including goodwill and other intangible assets) and may also be affected by the application of the PFIC rules, which are subject to differing interpretations. The fair market value of our assets is expected to depend, in part, upon (1) the market price of our ordinary shares and ADSs and (2) the composition of our income and assets, which will be affected by how, and how quickly, we spend any cash that is raised in any financing transaction. In light of the foregoing, no assurance can be provided that we are not currently a PFIC or that we will not become a PFIC in any future taxable year. Furthermore, if we are treated as a PFIC, then one or more of our subsidiaries may also be treated as PFICs. If we are or become a PFIC, and, if so, if one or more of our subsidiaries are treated as PFICs, U.S. holders of our ordinary shares and ADSs would be subject to adverse U.S. federal income tax consequences, such as ineligibility for any preferential tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements under U.S. federal income tax laws and regulations. Whether U.S. holders of our ordinary shares or ADSs make (or are eligible to make) a timely qualified electing fund, or QEF, election or a mark-to-market election may affect the U.S. federal income tax consequences to U.S. holders with respect to the acquisition, ownership and disposition of our ordinary shares and ADSs and any distributions such U.S. holders may receive. We do not, however, expect to provide the information regarding our income that would be necessary in order for a U.S. holder to make a QEF election if we are classified as a PFIC. Investors should consult their own tax advisors regarding all aspects of the application of the PFIC rules to our ordinary shares and ADSs. You may have difficulty enforcing judgments obtained against us. We are a company incorporated under the laws of the Cayman Islands, and substantially all of our assets are located outside the United States. Substantially all of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, all of whom are not residents in the United States and whose assets are located outside the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. You may be subject to limitations on transfers of your ADSs. Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason. ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company. Our company was founded in 2000 by Hutchison Whampoa Limited (which in 2015 became a wholly owned subsidiary of CK Hutchison), a Hong Kong based multinational conglomerate with operations in over 50 countries. CK Hutchison is the ultimate parent company of our majority shareholder Hutchison Healthcare Holdings Limited. 55

56 We launched our Innovation Platform in 2002 with the establishment of our subsidiary Hutchison MediPharma. Our Innovation Platform is focused on the discovery and development of small-molecule compounds against novel but relatively well-characterized targets with global first-in-class potential against these targets, as well as compounds against validated targets to potentially be global best-in-class, next-generation therapies with a superior profile compared to existing approved drugs that act against these targets. In the years since the launch of our Innovation Platform, we have assembled a leading drug research and development team in China to create a large scale and fully-integrated drug discovery and development operation covering chemistry, biology, pharmacology, toxicology, chemistry and manufacturing controls, clinical and regulatory and other functions, which work seamlessly together. Our approach has been to create a stable and supportive environment that allows our research and development team to innovate. We believe we have succeeded in this, and as of December 31, 2017, we and our collaboration partners discussed below have invested about $500 million in the discovery and development activities of our Innovation Platform. This has resulted in a significant clinical pipeline consisting of eight small molecule tyrosine kinase inhibitors, which are currently being investigated in clinical studies in 36 target patient populations around the world. We have taken a multi-source approach to funding which has been key to our ability to continuously support our Innovation Platform. We completed our initial public offering and listing on the AIM market of the London Stock Exchange in 2006 raising gross proceeds of approximately 40 million (equivalent to approximately $75 million at the prevailing exchange rate at that time). We completed our initial public offering in the United States and listing on the Nasdaq Global Select Market in 2016, raising gross proceeds of approximately $110.2 million, and we completed another underwritten public offering of securities in 2017, raising gross proceeds of approximately $301.3 million. We have also utilized bank facilities in the aggregate principal amount of approximately $30.0 million as of December 31, In addition, we have received government grants totaling approximately $16.7 million and investments from other parties since our establishment, including investments by Mitsui & Co. Ltd., or Mitsui, one of our shareholders, totaling over $15 million in the aggregate since Moreover, to further our research and development activities, we have entered into a number of collaboration agreements for the research, development and commercialization of certain of our drug candidates with leading global pharmaceutical and healthcare companies, including Janssen in 2008 (subsequently terminated in 2015), AstraZeneca in 2011 and Eli Lilly in In 2012, we also entered into a joint venture collaboration with Nestlé Health Science pursuant to which we share research and development expenses and receive payments for certain services. Under the terms of these collaborations, our partners have made certain upfront, milestone and service fee payments, clinical cost reimbursements and equity contributions, totaling approximately $260.0 million since In addition to financial support, we benefit from these arrangements by gaining access to our partners scientific, development, regulatory and commercial capabilities. Since 2001 to December 31, 2017, we have also developed a profitable Commercial Platform in China, which includes our non-consolidated joint ventures Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan, which have paid out dividends to our company and our partners totaling approximately $316.2 million. Our Commercial Platform encompasses two core areas: Prescription Drugs and Consumer Health products. Our core Prescription Drugs business is conducted through the following two joint ventures for which we nominate the management and run the day-to-day operations: Shanghai Hutchison Pharmaceuticals, which was formed in 2001 and primarily manufactures, markets and distributes approximately 74 prescription drug products, originally contributed by our joint venture partner, as well as third-party prescription drugs. As of December 31, 2017, it held 74 registered drug licenses in China. 50% of this joint venture is owned by us and 50% by Shanghai 56

57 Pharmaceuticals, a leading pharmaceutical company in China listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange, and Hutchison Sinopharm, which was formed in 2014 and focuses on providing logistics services to and distributing and marketing prescription drugs manufactured by pharmaceutical companies. 51% of this joint venture is owned by us and 49% is owned by Sinopharm, a leading distributor of pharmaceutical and healthcare products and a leading supply chain service provider in China listed on the Hong Kong Stock Exchange. Through these joint ventures, we have steadily built up an extensive sales and distribution network across China, with approximately 2,300 medical sales representatives as of December 31, Net income attributable to our company from our Prescription Drugs business was $15.9 million, $61.1 million and $29.0 million for the years ended December 31, 2015, 2016 and 2017, respectively. Net income attributable to our company from our Prescription Drugs business included one-time gains of $40.4 million in 2016, primarily from land compensation received by Shanghai Hutchison Pharmaceuticals from the Shanghai government. In 2017, net income attributable to our company from our Prescription Drugs business included one-time gains of $2.5 million in government subsidies received by Shanghai Hutchison Pharmaceuticals from the Shanghai government. Our Consumer Health business, which we do not consider to be core to our overall business and strategy, includes two joint ventures: Hutchison Baiyunshan, a joint venture which was formed in 2005 with Guangzhou Baiyunshan and focuses primarily on the manufacture, marketing and distribution of over-the-counter pharmaceutical products in China, and Hutchison Hain Organic, a joint venture which was established in 2009 and markets and distributes a broad range of natural and organic consumer products under brands owned by Hain Celestial in nine Asian territories. We also manufacture and distribute various infant nutrition products. Net income attributable to our company s shareholders from our Consumer Health business subsidiaries and joint ventures decreased marginally from $9.3 million in 2015 to $9.2 million in 2016 and increased by 19.7% to $11.0 million in As of December 31, 2017, we were the second largest AIM-listed company in terms of market capitalization. 57

58 Our Organizational Structure The chart below shows our principal subsidiaries and joint ventures as of March 1, CK Hutchison 60.4% Other AIM/Nasdaq Shareholders 39.6% Subsidiaries Joint Ventures Non-consolidated Entities Hutchison China MediTech Limited (Cayman Islands) Innovation Platform Commercial Platform 99.8% (1) Prescription Drugs Consumer Health 100.0% Hutchison MediPharma (HK) Investment Limited (Hong Kong) Outside the PRC Inside the PRC 100.0% Hutchison MediPharma Holdings Limited (Cayman Islands) 50.0% (2) Nutrition Science Partners Limited (Hong Kong) Shanghai Hutchison Chinese Medicine (HK) Investment Limited (Hong Kong) Hutchison Chinese Medicine GSP (HK) Holdings Limited (Hong Kong) 80.0% (5) Hutchison BYS (Guangzhou) Holding Limited (BVI) 100.0% 100.0% 100.0% 100.0% Guangzhou Hutchison Chinese Medicine (HK) Investment Limited (Hong Kong) 50.0% (7) Hutchison Hain Organic Holdings Limited (BVI) Hutchison Hain Organic (Hong Kong) Limited (Hong Kong) 50.0% (3) 51.0% (4) 50.0% (6) 100.0% Hutchison MediPharma Limited (PRC) Shanghai Hutchison Pharmaceuticals Limited (PRC) Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited (PRC) Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited (PRC) Hutchison Hain Organic (Guangzhou) Limited (PRC) 5MAR Notes: (1) Employees of Hutchison MediPharma Limited hold the remaining 0.2% shareholding. (2) Nestlé Health Science S.A. is the other 50% joint venture partner. (3) Shanghai Pharmaceuticals Holding Co., Ltd. is the other 50% joint venture partner. (4) Sinopharm Group Co. Ltd. is the other 49% joint venture partner. (5) Dian Son Development Limited holds the other 20% interest. (6) Guangzhou Baiyunshan Pharmaceutical Holdings Company Limited is the other 50% joint venture partner. (7) The Hain Celestial Group, Inc. is the other 50% joint venture partner. 58

59 B. Business Overview. Overview We are an innovative biopharmaceutical company based in China aiming to become a global leader in the discovery, development and commercialization of targeted therapies for oncology and immunological diseases. Our approximately 360-person strong scientific team has created and developed a deep portfolio of eight drug candidates that are being investigated in active or completed clinical studies in 36 target patient populations around the world. These drug candidates are being developed to treat a wide spectrum of diseases, including solid tumors, hematological malignancies, and cover immunology applications which we believe address significant unmet medical needs and represent large commercial opportunities. Many of these drugs have the potential to be first-in-class or best-in-class. Our success in research and development has led to partnerships with leading global pharmaceutical companies, including AstraZeneca, Eli Lilly and Nestlé Health Science. For seventeen years, we and our partners have invested about $500 million in building our Innovation Platform. Since inception to December 31, 2017, our Innovation Platform s drug pipeline has dosed over 3,500 patients/subjects in clinical trials of our drug candidates, with over 700 dosed in 2017, primarily driven by the enrollment of the six Phase III studies on savolitinib, fruquintinib, and sulfatinib. Our core research and development strategy has been to take a highly rigorous and focused crossdisciplinary approach to design uniquely selective small molecule tyrosine kinase inhibitors deliberately engineered to improve drug efficacy and reduce known side effects. Accordingly, we believe our drug candidates such as savolitinib (targeting the mesenchymal epithelial transition factor, or c-met), HMPL-523 (targeting the spleen tyrosine kinase, or Syk) and HMPL-453 (targeting fibroblast growth factor receptors, or FGFR1/2/3) have the potential to be global first-in-class therapies. In the cases of fruquintinib (targeting vascular endothelial growth factor receptor, or VEGFR 1/2/3), sulfatinib (targeting VEGFR/FGFR1/colony stimulating factor-1 receptor, or CSF-1R), epitinib (targeting epidermal growth factor receptor activating mutations, or EGFRm+, with brain metastasis), theliatinib (targeting EGFR wild-type) and HMPL-689 (targeting phosphoinositide 3-kinase, or PI3K ), we believe our drug candidates are sufficiently selective and/or differentiated to be potential global best-in-class, next-generation therapies. We also continue to focus on maximizing patient outcomes through clinical studies involving combinations or rotations of treatment of our drug candidates with other targeted therapies, immuno-oncology agents and chemotherapies. In June 2017, we completed our first NDA submission, which was for fruquintinib in patients with third-line colorectal cancer in China. We also initiated our first global Phase III study in oncology, for savolitinib in patients with papillary renal cell carcinoma. Each triggered milestone payments from our partners Eli Lilly and AstraZeneca, respectively, and each represents a major achievement for Chi-Med and for the biotechnology industry in China. In our view, the China oncology market represents a substantial and fast-growing market opportunity expected to be supported by China s increasing emphasis on innovation combined with its rapidly improving regulatory environment. We believe our well-established presence in China, combined with our ability to deliver global-quality innovation, positions us well to address the major unmet medical needs in the China oncology market as well as to identify opportunities for our differentiated assets in the global market. In addition to our Innovation Platform, we have established a profitable Commercial Platform in China which manufactures, markets and distributes prescription drugs and consumer health products. This Commercial Platform has been built over the past 17 years and focuses on two business areas. The first is our core Prescription Drugs business operated by joint ventures, Shanghai Hutchison Pharmaceuticals and Hutchison Sinopharm, which operate a network of approximately 2,300 medical sales representatives covering about 22,500 hospitals in over 300 cities and towns in China as of December 31, The second 59

60 is our Consumer Health business primarily operated by our joint venture, Hutchison Baiyunshan, which is a profitable and cash-generating business selling household-name, over-the-counter pharmaceutical products. Our Commercial Platform s total consolidated sales were $205.2 million in 2017, an increase of 13.5% compared to $180.9 million in 2016, mainly resulting from growth in Hutchison Sinopharm s Prescription Drug commercial services business. We and our joint ventures manufacture and sell about 4.6 billion doses of medicines a year, in the aggregate, through our well-established GMP-certified manufacturing bases. We intend to leverage this Commercial Platform to support the launch of products from our Innovation Platform if they are approved for use in China. Outside of China, we intend to commercialize our products, if approved, in the United States, Europe and other major markets on our own and/or through partnerships with leading biopharmaceutical companies. Our Innovation Platform Figure 1: Pipeline Chart 11MAR Notes: TPP = target patient population (TPP numbers are included for reference throughout the discussion below); Proof-of-concept = Phase Ib/II study (the dashed lines delineate the start and end of Phase Ib); combo = in combination with; brain mets = brain metastasis; VEGFR = vascular endothelial growth factor receptor; TKI = tyrosine kinase inhibitor; EGFR = epidermal growth factor receptor; 60

61 NET = neuroendocrine tumors; ref = refractory, which means resistant to prior treatment; T790M= EGFR resistance mutation; EGFRm+ = EGFR activating mutations; EGFR+ = EGFR gene amplification; EGFR WT = EGFR wild-type; 5ASA = 5-aminosalicylic acids; chemo = chemotherapy; c-met+ = c-met gene amplification; c-met O/E = c-met over-expression; FGFR = fibroblast growth factor receptor; CSF-1R = colony stimulating factor-1 receptor; NCI = U.S. National Cancer Institute; CCTG = Canadian Cancer Trial Group; Aus = Australia; Can = Canada; SK = South Korea; PRC = People s Republic of China; Sp = Spain; UK = United Kingdom; US = United States; Global = >2 countries. Overview of Our Clinical-stage Drug Candidates Savolitinib (AZD6094/HMPL-504) Savolitinib is a potential global first-in-class inhibitor of the mesenchymal epithelial transition factor, or c-met, receptor tyrosine kinase, an enzyme which has been shown to function abnormally in many types of solid tumors. We designed savolitinib as a potent and highly selective oral inhibitor which through chemical structure modification addresses renal toxicity, the primary issue that halted development of several other selective c-met inhibitors. In clinical studies to date, involving over 500 patients, savolitinib has shown promising signs of clinical efficacy and acceptable safety profile in patients with c-met gene alterations in papillary renal cell carcinoma, non-small cell lung cancer, colorectal cancer, and gastric cancer. We are currently testing savolitinib in partnership with AstraZeneca in multiple Phase Ib/II studies, both as a monotherapy and in combination with other targeted therapies. In June 2017, we initiated SAVOIR, a global pivotal Phase III, open-label, randomized multi-center registration study of savolitinib in c-met driven metastatic papillary renal cell carcinoma. This is the first pivotal study ever conducted in c-met driven papillary renal cell carcinoma and the first molecularly selected trial in renal cell carcinoma. We expect to complete enrollment in late At the 2017 World Conference on Lung Cancer, we presented preliminary safety and clinical activity data of savolitinib when given in combination with either Tagrisso or Iressa in two Phase Ib/II proof-of-concept trials conducted in patients with EGFRm+ non-small cell lung cancer with Met-amplification who had progressed following first-line treatment with an EGFR inhibitor. In both trials, the addition of savolitinib (600 mg once daily) to Tagrisso (80 mg once daily) or Iressa (250 mg once daily) demonstrated preliminary anti-tumor activity. We and AstraZeneca have now agreed on the next stage of development in non-small cell lung cancer patients as discussed below. Phase II gastric cancer studies are ongoing in China, and a multi-arm Phase II study, named the VIKTORY study, is being conducted at Samsung Medical Center in South Korea. Over 850 gastric cancer patients have been screened in these studies, and those patients with confirmed c-met driven disease are being treated with either savolitinib monotherapy or savolitinib in combination with Taxotere. We presented preliminary data from these studies in 2017, and the China study concluded that savolitinib monotherapy demonstrated promising anti-tumor efficacy. We believe the potential benefit to the patients warrants further exploration with Phase II enrollment continuing in China. The VIKTORY Phase II study is ongoing, and we expect to present preliminary data at a major scientific conference in The terms of our collaboration with AstraZeneca are governed by a December 2011 agreement under which we granted AstraZeneca co-exclusive, worldwide rights to develop, and exclusive worldwide rights to manufacture and commercialize savolitinib for all diagnostic, prophylactic and therapeutic uses. We refer to this agreement as the AstraZeneca Agreement. Under the original terms of the AstraZeneca Agreement, we and AstraZeneca agreed to share the development costs for savolitinib in China, with AstraZeneca being responsible for the development costs for savolitinib in the rest of the world. In August 2016, we and AstraZeneca agreed to amend the AstraZeneca Agreement, whereby we agreed to contribute up to $50 million, spread primarily over three years, to the joint development costs of the global 61

62 pivotal Phase III study in patients with c-met driven papillary renal cell carcinoma. Subject to approval in the papillary renal cell carcinoma indication, we will receive a five percentage point increase in the global tiered royalty rate payable on savolitinib sales across all indications in all regions excluding China. Taking into account such increase, AstraZeneca is obligated to pay us tiered royalties from 14.0% to 18.0% annually on all sales made of any product outside of China. After total aggregate sales of savolitinib have reached $5 billion outside of China, the royalty will step down over a two year period, to an ongoing royalty rate of 10.5% to 14.5%. See Item 4.B. Business Overview Overview of Our Collaborations AstraZeneca for more details. Fruquintinib (HMPL-013) Fruquintinib is a highly selective and potent oral inhibitor of vascular endothelial growth factor receptor, or VEGFR, and consequently we believe that it has the potential to be a global best-in-class VEGFR inhibitor for many types of solid tumors. Based on pre-clinical and clinical data to date, fruquintinib s kinase selectivity has been shown to reduce off-target toxicity. This allows for drug exposure that is able to fully inhibit VEGFR, a receptor tyrosine kinase which contributes to angiogenesis, the buildup of new blood vessels around a tumor, thereby contributing to the growth of tumors, and use in potential combinations with other agents such as chemotherapies, targeted therapies and immunotherapies. We believe these are points of meaningful differentiation versus other small molecule VEGFR inhibitors that have already been approved, such as Sutent, Nexavar and Stivarga, and can potentially significantly expand the use and market potential of fruquintinib. In partnership with Eli Lilly, we are currently studying fruquintinib in colorectal cancer, non-small cell lung cancer and gastric cancer in China. In June 2017, the CFDA acknowledged acceptance of the NDA for fruquintinib for the treatment of patients with advanced colorectal cancer. Fruquintinib was subsequently awarded priority review status in view of its significant clinical value, according to a CFDA announcement in September The NDA is supported by data from the successful FRESCO study, a Phase III pivotal registration trial of fruquintinib in 416 patients with locally advanced or metastatic colorectal cancer in China, which was highlighted in an oral presentation at the American Society of Clinical Oncology Annual Meeting in June In February 2018, we completed patient enrollment of the FALUCA study, a Phase III pivotal trial of fruquintinib in 527 advanced, third-line, non-small cell lung cancer patients in China. Top-line data are expected to be reported in late 2018 when the overall survival data are mature, and subject to a positive outcome, would be followed by a second NDA submission thereafter. The FALUCA study was initiated following a similar Phase II clinical trial in 91 third-line non-small cell lung cancer patients that succeeded in meeting its primary efficacy endpoint of progression-free survival reporting only one treatment-related adverse event greater than or equal to grade 3, or grade 3, based on the National Cancer Institute s Common Terminology Criteria for Adverse Event, or CTC, which is a set of criteria for the standardized classification of adverse effects of drugs used in cancer therapy (with 1 and 2 being relatively mild and higher numbers (up to 5) being more severe), which was hypertension (8.2%). Results were highlighted in an oral presentation at the World Conference on Lung Cancer in December We believe the most significant global market opportunity for fruquintinib will come by combining it with other oncology therapies such as chemotherapy, immunotherapy and other tyrosine kinase inhibitors for use in earlier-line treatments. Along with the FALUCA study, fruquintinib is concurrently being studied in a Phase II study in combination with Iressa in a first-line setting for patients with advanced or metastatic non-small cell lung cancer. In October 2017, we reported preliminary clinical activity, safety and tolerability data of fruquintinib in combination with Iressa in patients with EGFRm+ non-small cell lung cancer. These data were from an ongoing Phase II proof-of-concept trial which was initiated in January 2017 and presented at the World Conference on Lung Cancer in October

63 In October 2017, we initiated the FRUTIGA study, a pivotal Phase III clinical trial of fruquintinib in combination with Taxol in second-line gastric cancer. The FRUTIGA study was initiated following the results of an open-label, multi-center, Phase Ib dose finding/expansion study of fruquintinib in combination with Taxol in second-line gastric cancer, which established a well-tolerated combination dose with encouraging efficacy. We have established a manufacturing (formulation) facility in Suzhou, China, which now produces Phase III clinical supplies and will be used to produce fruquintinib, as well as our other drugs, for commercial supply if approved. In December 2017, we also initiated a multi-center, open-label, Phase I clinical study to evaluate the safety, tolerability and pharmacokinetics of fruquintinib in U.S. patients with advanced solid tumors. Sulfatinib (HMPL-012) Sulfatinib is an oral drug candidate with a unique angio-immuno kinase profile which provides both anti-angiogenesis effect and, we believe, activates and effectively enhances the body s immune system, specifically T-cells. Importantly, in 2016 we presented pre-clinical data that show sulfatinib, in addition to inhibiting VEGFR and FGFR1, is a potent inhibitor of CSF-1R, a signaling pathway involved in blocking the activation of tumor-associated macrophages, which cloak cancer cells from attack from T-cells. We are currently conducting six clinical trials of sulfatinib and retain all rights to sulfatinib worldwide. In early 2017, we completed a Phase II study in neuroendocrine tumor patients in China and reported the results from this Phase II study in a total of 81 patients which indicated that sulfatinib was well tolerated with highly encouraging efficacy in patients with both pancreatic neuroendocrine tumors and extrapancreatic neuroendocrine tumors. Importantly, for purposes of our potential global development strategy, there were 14 patients who had progressed after treatment with systemic therapies (e.g., Sutent and Afinitor) and all benefited from sulfatinib treatment. Based on the promising Phase II efficacy data and tolerability in patients with advanced neuroendocrine tumors, we initiated two randomized Phase III trials in China along with development in the United States. Sulfatinib is the first oncology candidate that we have taken through proof-of-concept in China and expanded to a U.S. clinical study ourselves. A Phase I study in cancer patients in the United States is now close to completion. Having established that the 300 mg once daily dose used in China is safe in U.S. patients, we are now also enrolling a final cohort to establish that a 400 mg dose is also safe in U.S. patients. We are currently in final planning stage for an expansion of sulfatinib development in the United States into a multi-arm proof-of-concept study to explore efficacy and safety in both Sutent and Afinitor refractory pancreatic neuroendocrine tumor patients as well as patients with biliary tract cancer (also known as cholangiocarcinoma). We initiated a Phase II study in patients with locally advanced or metastatic radioactive iodinerefractory differentiated thyroid cancer or medullary thyroid cancer in China in March We also initiated a further Phase II study in patients with biliary tract cancer in January Epitinib (HMPL-813) A significant portion of patients with non-small cell lung cancer go on to develop brain metastasis. Patients with brain metastasis suffer from poor prognosis. Epitinib is a potent and highly selective oral EGFR inhibitor which has demonstrated brain penetration and efficacy in pre-clinical and now clinical studies. EGFR inhibitors have revolutionized the treatment of non-small cell lung cancer with EGFR activating mutations. However, approved EGFR inhibitors such as Iressa and Tarceva cannot penetrate the blood-brain barrier effectively, leaving the majority of patients with brain metastasis without an effective targeted therapy. We currently retain all rights to epitinib worldwide. 63

64 In December 2016, we presented positive results from our Phase Ib proof-of-concept study in non-small cell lung cancer patients with EGFR activating mutations and brain metastasis, in which epitinib demonstrated encouraging tumor response efficacy in both the lung and the brain. We expect to decide the Phase III dose in early 2018 and initiate Phase III shortly thereafter. If epitinib is able to provide clinical benefit to non-small cell lung cancer patients with brain metastasis in these studies, we believe that, subject to regulatory approval, we will be well-positioned to address a major global unmet medical need. Additionally, in March 2018, we initiated a Phase Ib/II proof-of-concept study of epitinib in glioblastoma patients with EGFR gene amplification in China. Glioblastoma is a primary brain cancer that harbors high levels of EGFR gene amplification. This Phase Ib/II study will be a multi-center, single-arm, open-label study to evaluate the efficacy and safety of epitinib as a monotherapy in patients with EGFR gene amplified, histologically confirmed glioblastoma. Theliatinib (HMPL-309) Like epitinib, theliatinib is a novel molecule EGFR inhibitor under investigation for the treatment of solid tumors. Tumors with wild-type EGFR activation, for instance, through gene amplification or protein over-expression, are less sensitive to current EGFR tyrosine kinase inhibitors, Iressa and Tarceva, due to sub-optimal binding affinity. Theliatinib has been designed with strong affinity to the wild-type EGFR kinase and has been shown to be five to ten times more potent than Tarceva. Consequently, we believe that theliatinib could benefit patients with esophageal and head and neck cancer, tumor-types with a high incidence of wild-type EGFR activation. We currently retain all rights to theliatinib worldwide. We are currently conducting a Phase I dose escalation study for theliatinib, with preliminary activity observed, and have initiated a Phase Ib study in patients with esophageal cancer with a high level of EGFR activation. HMPL-523 We believe HMPL-523 is a potential global first/best-in-class oral inhibitor targeting spleen tyrosine kinase, or Syk, a key protein involved in B-cell signaling. Modulation of the B-cell signaling system has been proven to significantly advance the treatment of certain chronic immune diseases, such as rheumatoid arthritis as well as hematological cancers. To date, only monoclonal antibody immune modulators, which seek to use the patient s own immune system to treat the disease, have been approved. As an oral drug candidate, we believe HMPL-523 has important advantages over intravenous monoclonal antibody immune modulators in rheumatoid arthritis in that as small molecule compounds clear the system faster, thereby reducing the risk of infections from sustained suppression of the immune system. Moreover, other drug development companies have tried to design small molecule Syk inhibitors for the treatment of chronic immune diseases, but designing an efficacious and safe Syk inhibitor has proven to be exceptionally difficult. No drug products targeting Syk have been approved to date due to severe off-target toxicity, such as hypertension, as a result of poor kinase selectivity. HMPL-523 is a potent and highly selective oral inhibitor specifically designed to overcome these off-target toxicity issues. We currently retain all rights to HMPL-523 worldwide. With respect to the treatment of hematological cancers, Gilead Sciences Inc., or Gilead, and Takeda Pharmaceutical Company Ltd., or Takeda, both published in late 2015 encouraging proof-of-concept data showing strong signals of efficacy for their respective small molecule Syk inhibitors. The data are consistent with the major clinical successes and drug approvals in recent years of inhibitors targeting other kinases in the B-cell signaling pathway such as Bruton s tyrosine kinase, or BTK, and phosphoinositide 3-kinase, or PI3K. While these BTK and PI3K inhibitors have been successful, resistance to these inhibitors can emerge over time, leading to loss in efficacy, and new targets in B-cell signaling such as Syk are potential solutions to this problem. 64

65 Our Phase I clinical trial in healthy volunteers completed a single ascending dose segment in mid-2015, where a single dose is given and the volunteers are observed and tested to confirm safety, and the results were well above the expected efficacious dose. The multiple ascending dose segment of the trial, where multiple doses are given to learn how the drug candidate is processed within the body was successfully completed in October We have submitted our U.S. immunology Investigational New Drug, or IND, application and engaged with the FDA around our plan for development in rheumatoid arthritis. We are now preparing to submit additional data to the FDA after which we will consider our U.S. development strategy in immunology. In addition, in early 2016 we initiated a Phase I trial in Australia in patients with relapsed and/or refractory B-cell non-hodgkin s lymphoma or chronic lymphocytic leukemia for whom there is no standard therapy. In mid-2016, we received clearance from the CFDA on our hematological cancer IND application and as a result, in January 2017, we started Phase I dose escalation in patients with B-cell non-hodgkin s lymphoma or chronic lymphocytic leukemia in China. We are now in the process of increasing the number of clinical sites in Australia and China to support Phase Ib/II expansion in a broad range of indolent non-hodgkin s lymphoma sub-types. We target to present dose escalation and expansion results, including preliminary proof-of-concept data, at a major scientific conference later in We believe the market potential for a successful Syk inhibitor is substantial. To our knowledge, we are the only company worldwide, other than Gilead, developing Syk inhibitors for chronic immune diseases as well as oncology. HMPL-689 HMPL-689 is a novel, highly selective and potent small molecule inhibitor targeting the isoform PI3K, a key component in the B-cell receptor signaling pathway. We have designed HMPL-689 with superior PI3K isoform selectivity, in particular to not inhibit PI3K (gamma), to minimize the risk of serious infection caused by immune suppression. HMPL-689 s strong potency, particularly at the whole blood level, also allows for reduced daily doses to minimize compound related toxicity, such as the high level of liver toxicity observed with the first-generation PI3K inhibitor Zydelig. HMPL-689 s pharmacokinetic properties have been found to be favorable with good oral absorption, moderate tissue distribution and low clearance in pre-clinical pharmacokinetic studies. We also expect HMPL-689 will have low risk of drug accumulation and drug-to-drug interaction. Given this, we believe that HMPL-689 has the potential to be a global best-in-class PI3K agent. We currently retain all rights to HMPL-689 worldwide. In 2016, we completed a Phase I, first-in-human, dose escalation study in healthy adult volunteers in Australia to evaluate the pharmacokinetics and safety profile following single oral dosing HMPL-689. Results were as expected with linear pharmacokinetics properties and good safety profile. We subsequently received IND clearance in China and then initiated a Phase I dose escalation and expansion study in patients with hematologic malignancies in August HMPL-453 HMPL-453 is a novel, potentially first-in-class, highly selective and potent small molecule inhibitor that targets FGFR 1/2/3, a sub-family of receptor tyrosine kinases. Aberrant FGFR signaling has been found to be a driving force in tumor growth (through tissue growth and repair), promotion of angiogenesis and resistance to anti-tumor therapies. To date, there are no approved therapies specifically targeting the FGFR signaling pathway. In pre-clinical studies, HMPL-453 demonstrated superior kinase selectivity and safety profile as well as strong anti-tumor potency, as compared to drug candidates in the same class. Abnormal FGFR gene alterations are believed to be the drivers of tumor cell proliferation in several solid tumor settings. We currently retain all rights to HMPL-453 worldwide. 65

66 In June 2017, we initiated a Phase I/II clinical trial in China to evaluate safety, tolerability, pharmacokinetics and preliminary efficacy of HMPL-453 monotherapy in patients with solid tumors harboring FGFR genetic alterations. This study complements the first-in-human Phase I clinical trial in Australia that was initiated in February For more detailed information on the pre-clinical and clinical studies of these and our other drug candidates, please see Our Clinical Pipeline. Our Commercial Platform Our Commercial Platform is principally operated through joint ventures with three of the largest China-based healthcare conglomerates, Shanghai Pharmaceuticals, Sinopharm and Guangzhou Baiyunshan. We are currently focusing primarily on the distribution and manufacture of cardiovascular and anti-viral products, as well as the distribution of third-party products such as Concor, a cardiovascular drug from Merck Serono Co., Ltd., or Merck Serono, and Seroquel, a drug for the treatment of various psychiatric disorders from AstraZeneca. Our Commercial Platform has generated substantial cashflow over the years and will serve to help bring products from our Innovation Platform to market quickly and efficiently in China upon regulatory approval. Net income attributable to our company from our Commercial Platform was $25.2 million $70.3 million and $40.0 million for the years ended December 31, 2015, 2016 and 2017, respectively. Net income attributable to our company from our Prescription Drugs business included one-time gains of $40.4 million and $2.5 million in the years ended December 31, 2016 and 2017, respectively, net of tax, from land compensation and other government subsidies paid to Shanghai Hutchison Pharmaceuticals by the Shanghai government. Our Research and Development Approach The strategy of our research and development program is to differentiate ourselves from companies developing and commercializing competing kinase inhibitors with a chemistry-focused approach. Our approach focuses on the development of kinases inhibitors with: unique selectivity to limit target-based toxicity, high potency to optimize the dose selection with the objective to lower the required dose and thereby limit compound-based toxicity, chemical structures deliberately engineered to improve drug exposure in the targeted tissue, and ability to be combined with other therapeutic agents. Our approach consists of two main pillars, which we believe provides a balanced risk profile for our Innovation Platform: (i) developing synthetic compounds against novel targets with global first-in-class potential, which includes savolitinib (targeting c-met), HMPL-523 (targeting Syk) and HMPL-453 (targeting FGFR1/2/3); and (ii) developing synthetic compounds against validated targets with clear differentiation to potentially be a global best-in-class/next-generation therapy in their respective categories, including fruquintinib (targeting VEGFR1/2/3), sulfatinib (targeting VEGFR/FGFR1/CSF-1R), epitinib (targeting EGFRm+ brain metastasis), theliatinib (targeting EGFR wild type) and HMPL-689 (targeting PI3K ). Our Clinical Pipeline We are developing many of our drug candidates against multiple indications, which in some cases are common to one or more of our drug candidates. 66

67 Savolitinib c-met Inhibitor We first became interested in studying c-met over a decade ago as it became clear that c-met functions abnormally in many types of solid tumors and as such increasingly represented an important possible target in the treatment of cancer. We designed savolitinib as a potent and highly selective oral inhibitor, which through chemical structure modification addressed renal toxicity, the primary issue that has prevented c-met inhibitors developed by other biopharmaceutical companies from gaining regulatory approval. Mechanism of Action C-Met, which is also known as hepatocyte growth factor receptor, or HGFR, is a signaling pathway that has specific roles in normal mammalian growth and development. However, the HGFR pathway has also been shown to function abnormally in a range of different cancers, primarily through c-met gene amplification, c-met over-expression and gene mutations. The aberrant activation of c-met has been demonstrated to be highly correlated in many cancer indications, including kidney, lung, gastric, colorectal, esophageal and brain cancer, and plays a major role in cancer pathogenesis (i.e., the development of the cancer), including tumor growth, survival, invasions, metastasis, the suppression of cell death as well as tumor angiogenesis. As a result, c-met has become a widely investigated anti-cancer target in recent years with several c-met inhibitors under development by different companies, although to date none have received regulatory approval. C-Met also plays a role in drug resistance in many tumor types. For instance, c-met gene amplification has been found in non-small cell lung cancer and colorectal cancer following anti-egfr treatment, leading to drug resistance. Furthermore, c-met over-expression has been found to emerge in renal cell carcinoma following anti-vegfr treatment. Savolitinib Research Background Around the time of the 2008 American Association for Cancer Research meetings, selective c-met compounds were unveiled by multinational pharmaceutical companies such as Pfizer Inc. (PF ), Janssen (JNJ ) as well as biotechnology companies including Incyte Corporation (INC280, which was later licensed to Novartis International AG, or Novartis) and SGX Pharmaceuticals (SGX-523, which was later licensed to Eli Lilly). These compounds all had positive pre-clinical data that supported their high c-met selectivity and pharmacokinetic and toxicity profiles, and as a result they were all progressed into Phase I clinical studies in Unfortunately, this first wave of selective c-met inhibitors did not progress very far in the clinic. The subsequent failure of many of this first wave of c-met inhibitors was a major setback, and subsequently led to a decline in research interest in the c-met target. However, we took the decline in interest as an opportunity to increase our investment in our selective c-met research program. We studied emerging hypotheses around the reason for the kidney toxicity issues in the above mentioned c-met inhibitors. The issue appeared to be that certain metabolites of earlier compounds had dramatically reduced solubility and appeared to crystalize in the kidney, resulting in obstructive toxicity. These metabolites were not evident in the pre-clinical animal models and only became evident in human testing. During 2010 and 2011, we designed and completed pre-clinical studies for our compound, savolitinib (also known as AZD6094 and HMPL-504, formerly known as volitinib). Despite replacing the quinoline region of the earlier c-met compounds which was believed to help drive their selective properties, savolitinib remains a highly selective compound. It also has the important advantage that it has not shown any renal toxicity to date and does not appear to carry the same metabolites problems as the earlier selective c-met compounds. 67

68 Figure 2: Chemical structures of selective c-met inhibitors versus savolitinib chemical structure, showing replacement of the quinoline group PF (Pfizer) JNJ (Janssen) SGX-523 (Lilly) INC-280 (Novartis/Incyte) savolitinib (Chi-Med) 11MAR Sources: 1. Zou H, et al, 99 th Annual Meeting for American Association for Cancer Research (AACR); April 2008; San Diego, USA 2. Perera T, et al, 99 th Annual Meeting for American Association for Cancer Research (AACR); April 2008; San Diego, USA 3. Bounaud et al, WO 2008/ A2 4. Liu X, et al, 99 th Annual Meeting for American Association for Cancer Research (AACR); April 2008; San Diego, USA 5. Su W, et al, 105 th Annual Meeting of the American Association for Cancer Research (AACR); April 2014; San Diego, USA 6. Diamond S, et. al, Species-specific metabolism of SGX523 by aldehyde oxidase, Drug Metabolism and Disposition, 2010, 38, Savolitinib Pre-clinical Evidence In vitro biological profile In pre-clinical studies, savolitinib demonstrated strong in vitro activity against c-met, affecting its downstream signaling targets and thus blocking the related cellular functions effectively, including proliferation, migration, invasion, scattering and the secretion of vascular endothelial growth factor, or VEGF, that plays a pivotal role in tumor angiogenesis. One of our key areas of focus in our pre-clinical studies was to achieve superior selectivity of savolitinib on a number of kinases. A commonly used quantitative measure of selectivity is IC 50, which represents the concentration of a drug that is required for 50% inhibition of the target kinase in vitro and the plasma concentration required for obtaining 50% of a maximum effect in vivo. High selectivity is achieved with a very low IC 50 for the target cells, and a very high IC 50 for the healthy cells (approximately 100 times higher than for the target cells). In the c-met enzymatic assay, which is a method of measuring enzyme activity, savolitinib showed potent activity with IC 50 of 5 nm (nano-mole, a microscopic unit of measurement for the number of small molecules required to deliver the desired inhibitory effect). In a kinase selectivity screening with 274 kinases, savolitinib had potent activity against the c-met Y1268T 68

69 mutant (comparable to the wild-type), weaker activity against other c-met mutants and almost no activity against all other kinases. Savolitinib was found to be approximately 1,000 times more potent to c-met than the next non-c-met kinase. Figure 3: The high selectivity of savolitinib as shown on a panel of 274 different kinases 9MAR Source: W. Su, et al, 2014 American Association for Cancer Research Note: The red dots shown in the graphic represent the five kinases, all c-met wild-type or mutations, which are inhibited over 90% at 1,000 nm (1 Ȗ M) of savolitinib. The other 269 kinases are inhibited by less than 51%. In cell-based assays measuring activity against c-met phosphorylation, savolitinib demonstrated potent activity in both ligand-independent (gene amplified) and ligand-dependent (over-expression) cells with IC50s at low nanomolar levels. Phosphorylation is the binding of a phosphate group to a protein or other organic molecule, which has the effect of activating the function of that protein. In target related tumor cell function assays, including inhibition on HGF-dependent tumor cell proliferation, migration, and invasion, savolitinib showed high potency with IC50 of less than 10 nm. In addition, savolitinib demonstrated potent in vitro anti-angiogenesis activity. Savolitinib inhibited VEGF secretion of lung cancer cell H441 in a dose-dependent manner with an IC50 of 45 nm and inhibited HGF-dependent human umbilical vein endothelial cells tube formation with an IC50 of 12 nm. Furthermore, when we tested savolitinib in several different tumor cell lines, it demonstrated cytotoxicity only on tumor cells that were c-met gene amplified or c-met over-expressed. In other cells, inhibition measurements demonstrated that IC50 amounts were over 30,000 nm, which is thousands of times higher than the IC50 on c-met tumor cells. For example, in testing savolitinib in NCI-H1993 non-small cell lung cancer cells, which have high c-met gene amplification, IC50 measurements were less than 10 nm. This suggests that it would require at least 3,000 times as much savolitinib to inhibit non-c-met cells to the same degree as it inhibits a NCI-H1993 c-met cell, thereby demonstrating savolitinib s high selectivity for c-met. Similarly, in c-met gene amplified gastric cancer cells such as SNU-5 and Hs746T, savolitinib demonstrated IC50s of 3 nm and 5 nm, respectively. 69

70 The data above suggest that (i) savolitinib has potent activity against tumor cell lines with c-met gene amplification in the absence of HGF, indicating that there is HGF-independent c-met activation in these cells; (ii) savolitinib has potent activity in tumor cell lines with c-met over-expression, but only in the presence of HGF, indicating HGF-dependent c-met activation; and (iii) savolitinib has no activity in tumor cell lines with low c-met over-expression/gene amplification, suggesting that savolitinib has strong kinase selectivity. In vivo efficacy We tested the in vivo activity of savolitinib on different human tumor xenograft models (a common pre-clinical technique where human tumor cells are transplanted into various animal models). For example, in a gastric cancer Hs746T model with c-met gene amplification, savolitinib was found to inhibit tumor growth potently with good dose response. At a 2.5 mg/kg (kg weight of the animal) once daily oral dose, savolitinib induced tumor shrinkage, suggesting potent anti-tumor activity. Moreover, the anti-tumor activity appeared to correlate well with the inhibition of c-met phosphorylation and activation. Similarly and as in the NCI-H1993 in vitro studies, in vivo studies on c-met gene amplified NCI-H1993 xenografts also showed significant anti-tumor efficacy, with a median effective dose, or ED 50, of 4.7 mg/kg per day. The median effective dose is the dose that produces the desired effect in 50% of the population that takes it. Savolitinib showed strong synergistic effects with other anti-cancer therapies in certain pre-clinical models. We developed the HCC827C4R model to test several savolitinib combinations, a model which has high c-met gene amplification and is originally derived from a non-small cell cancer cell line that is highly sensitive to EGFR inhibitors. The combination of savolitinib with the EGFR inhibitor Iressa in the HCC827C4R xenograft model demonstrated strong synergistic effect, suggesting targeting multiple pathways simultaneously may provide a viable approach for the treatment of tumors with activation of multiple pathways. These data suggest that there is a strong rationale for patients whose disease progressed after EGFR tyrosine kinase inhibitor treatment with c-met gene amplification to use a combination therapy including savolitinib. Figure 4: Savolitinib in combination with Iressa in the HCC827C4R Met gene amplification model to test several savolitinib (HMPL-504) combinations, showing a clear dose-dependent response Tumor Volume (mm 3 ) Vehicle savolitinib-3 mpk savolitinib-10 mpk gefitinib-50 mpk gefitinib-100 mpk gefitinib-50/savolitinib-3 mpk gefitinib-50/savolitinib-10 mpk Source: Chi-Med pre-clinical data for savolitinib Note: mpk = mg per kg of animal Days of Treatment 9MAR

71 We also studied in several subcutaneous xenograft models the anti-tumor effect of savolitinib in combination with Taxotere, a commonly used chemotherapy in gastric cancer treatment. In our studies, the combination produced additive or synergistic anti-tumor effect, and no significant additive or synergistic toxicity between the two drugs was found. Savolitinib Early and Completed Clinical Development As discussed below, we have completed various clinical trials of savolitinib in Australia and China. Savolitinib Phase I study in Australia We conducted the first-in-human Phase I study of savolitinib in patients with advanced solid tumors starting in 2012 in Australia. The study was conducted to determine the maximum tolerated dose or recommended Phase II dose, dose-limiting toxicities, pharmacokinetics profile and preliminary anti-tumor activity of savolitinib. The first patient was enrolled in February 2012, and enrollment of a total of 47 patients was completed in June The data of 35 patients in the dose escalation stage of this Phase I study were presented at the 2014 annual meeting of the American Society of Clinical Oncology. CTC grade 3 adverse events with greater than 5% incidence associated with savolitinib treatment were fatigue (9.1%) and shortness of breath, or dyspnea (6.1%). Four patients reported five incidences of dose-limiting toxicities, including one CTC grade 3 incidence of elevated alanine transaminase (600 mg once daily), one incidence of CTC grade 3 fatigue (800 mg once daily), two incidences of CTC grade 3 fatigue and one incidence of CTC grade 3 headache (1,000 mg once daily). Notably, no obstructive kidney toxicity was seen in this study. We identified 800 mg as the maximum tolerated dose of the once daily regimen. A pharmacokinetics analysis showed savolitinib was rapidly absorbed with a half-life of approximately five hours, and drug exposure increased in a dose-proportional manner and with no obvious accumulation. This study showed that savolitinib was well tolerated at doses of up to 800 mg once daily, proving that savolitinib is capable of providing complete target inhibition over 24 hours based on drug concentration required for complete c-met phosphorylation inhibition derived in pre-clinical studies. Savolitinib Phase I study in China In June 2013, we initiated a Phase I dose escalation study of savolitinib in China. By June 2015, a total of 41 patients had been enrolled across the dose escalation and dose expansion stages of the study. We concluded that the data from this China Phase I study were consistent with the Australian Phase I study discussed above and that savolitinib was well tolerated at doses up to 800 mg once daily or 600 mg twice daily. The complete Phase I study results, combining data from Australia and China, were presented at the American Society of Clinical Oncology s annual meeting in Kidney Cancer Emerging Efficacy in Papillary Renal Cell Carcinoma During the Australia Phase I study, our investigators began to notice positive outcomes among papillary renal cell carcinoma patients with a strong correlation to c-met gene amplification status. As a result, we became interested in this area because there are no effective approved treatments to date for papillary renal cell carcinoma. Out of a total of eight papillary renal cell carcinoma patients in our Australia Phase I study who have been treated with various doses of savolitinib, three have achieved confirmed partial response (tumor measurement reduction of greater than 30%). One of these patients has been on the drug for over 30 months and has had tumor measurement reduction of greater than 85%. A further three of these eight 71

72 papillary renal cell carcinoma patients achieved stable disease, which means patients without partial response but with a tumor measurement increase of less than 20%. The aggregate objective response rate (the percentage of patients in the study who show either partial response or complete response) of 38% is very encouraging for papillary renal cell carcinoma, which as stated above currently has no effective approved treatments on the global market. These responses were also durable as demonstrated by a patient who has been on the therapy for over 30 months. Prior to savolitinib, the highest objective response rate reported for a papillary renal cell carcinoma specific Phase II study (of 74 papillary renal cell carcinoma patients) was 13.5% by foretinib (a multi-kinase inhibitor of c-met/vegfr2, which was not submitted for regulatory approval) in 2012, as reported by the National Institutes of Health s National Center for Biotechnology Information. Importantly, the level of tumor response among these papillary renal cell carcinoma patients correlated closely with the level of c-met gene amplification. The patients with consistent c-met gene amplification (across the whole tumor) respond most to savolitinib. Patients with c-met gene amplification on parts of the tumor (focal Met) respond only if it is a large part of the tumor. Finally, patients with no c-met gene amplification respond least. Importantly, the magnitude of c-met gene amplification can vary widely between patients, with those patients with the highest level of c-met gene amplification responding most to the treatment. In addition, a colorectal cancer patient in the Phase I study with high levels of c-met gene amplification in the 600 mg once daily cohort achieved 29% tumor reduction. Phase II study of savolitinib monotherapy in papillary renal cell carcinoma in the United States, Canada and Europe In early 2017, we presented the results of our 109-patient global Phase II study in papillary renal cell carcinoma at the American Society of Clinical Oncology Genitourinary Cancers Symposium as well as in the Journal of Clinical Oncology as a Rapid Communication Manuscript. This Phase II study was the largest and most comprehensive clinical study in papillary renal cell carcinoma ever conducted. Of 109 patients treated with savolitinib, papillary renal cell carcinoma was c-met driven in 44 patients (40%), c-met independent in 46 patients (42%) and Met status unknown in 19 patients (17%). c-met driven papillary renal cell carcinoma was strongly associated with encouragingly durable response to savolitinib with an objective response rate in the c-met driven group of 18.2% (8/44) as compared to 0% (0/46) in the c-met independent group (p=0.002), based on confirmed partial responses. Median progression-free survival for patients with c-met driven and c-met independent papillary renal cell carcinoma patients was 6.2 months (95% confidence interval: ) and 1.4 months (95% confidence interval: ), respectively (hazard ratio=0.33; 95% confidence interval: ; log-rank p<0.0001). Savolitinib was well tolerated, with no reported treatment related CTC grade 3 adverse events with greater than 5% incidence. Total aggregate savolitinib treatment-related CTC grade 3 adverse events occurred in just 19% of patients comparing very well to the 70-75% CTC grade 3 adverse event level recorded in VEGFR inhibitors such as Sutent and Votrient (pazopanib) in multiple renal cell carcinoma studies (N Eng J Med 369;8, R J Motzer et al). 72

73 Figure 5: Phase II study of savolitinib monotherapy in papillary renal cell carcinoma in the United States, Canada and Europe. This study clearly demonstrated c-met driven patients had better progression-free survival compared to c-met independent patients. 28FEB Non-Small Cell Lung Cancer Phase I study of savolitinib in combination with Tagrisso T790M(+/ ) non-small cell lung cancer (AstraZeneca TATTON (Part A) dose finding study) In November 2015, AstraZeneca received FDA approval for Tagrisso, its drug candidate for the treatment of T790M+ EGFRm+, tyrosine kinase inhibitor-resistant non-small cell lung cancer. Tagrisso was granted Breakthrough Therapy designation and expedited approval by the FDA and was one of the fastest development programs ever recorded at just over two and a half years from the start of Phase I clinical trials to FDA approval. We understand that the speed of development and approval of Tagrisso was driven by the clearly defined molecular pathways (T790M), the existence of a major unmet medical need in the treatment of non-small cell lung cancer, and the high degree of efficacy demonstrated by Tagrisso. In this T790M+ patient population, Tagrisso recorded an objective response rate of 59% in two large-scale Phase II studies that formed the basis for FDA approval. Another portion of EGFRm+ tyrosine kinase inhibitor-resistant patients progresses because of c-met gene amplification. The TATTON (Part A) Phase I study of Tagrisso plus savolitinib combination treatment was initiated in August 2014 to determine the safety and tolerability of the combination therapy and the recommended Phase II dose. Based on the positive safety and tolerability results and encouraging early clinical efficacy, a TATTON (Part B) Phase IIb proof-of-concept study was initiated to confirm safety and efficacy. 73

74 The primary objective of the TATTON Phase I (Part A) study was to establish a safe and effective combination dose. All patients were screened for their T790M status (+/ ) as well as some for their c-met gene amplification status, if sufficient tissue samples were available, although patients of all tumor types were admitted to the trial regardless of status. A total of 12 patients were dosed with either 600 mg or 800 mg of savolitinib in combination with 80 mg of Tagrisso once daily. It was found that both 600 mg and 800 mg once daily could be combined with 80 mg of Tagrisso once daily with a safety profile consistent with single agent use. Furthermore, of the 11 evaluable patients in the study, six confirmed partial responses have been observed to date. This resulted in an objective response rate of 55% and contributed to a disease control rate of 100%. Figure 6: Best percentage changes in tumor size versus baseline in patients (with each column representing a single patient) treated with a combination of savolitinib and Tagrisso in the TATTON Phase I (Part A) study, by T790M status when available 60% Unknown 40% T790M- Best percentage changes in tumor size vs. baseline (%) 20% 0% -20% -40% -60% Objective Response Rate: 55% T790M+ -80% Disease Control Rate: 100% - 100% 9MAR Source: Oxnard et al, Preliminary results of TATTON (Part A), a multi-arm Phase I trial of AZD9291 combined with MEDI4736, AZD6094 or selumetinib in EGFR-mutant lung cancer, J Clin Oncol 33, 2015 (suppl; abstr 2509) Note: 6 patients ongoing treatment at data cut-off None of the adverse effects in the 600 mg dose were CTC grade 3, and only two in the 800 mg dose were CTC grade 3. These were nausea (8.3%) and decreased white blood cell count (8.3%). This novel combination of two well-tolerated therapies, albeit on a low base size, has delivered significant objective response rate levels. As a result, we have expanded the TATTON Phase Ib study to demonstrate broader proof-of-concept, as discussed below in Target Patient Population 6 in the pipeline chart. Savolitinib Current Clinical Development and Near-Term Plans We are currently testing savolitinib in partnership with AstraZeneca in multiple Phase Ib/II studies, both as a monotherapy and in combination with other targeted therapies. In June 2017, we initiated our 74

75 first global Phase III registration study in papillary renal cell carcinoma. In late 2017, we presented positive Phase Ib/II data at the World Conference on Lung Cancer on savolitinib in combination with Tagrisso and Iressa, in both second- and third-line non-small cell lung cancer and are now working closely with AstraZeneca on next steps for development as discussed below. Kidney Cancer Phase III papillary renal cell carcinoma, savolitinib (600 mg once daily) monotherapy Global (Target Patient Population 1 in pipeline chart; Status: enrolling; NCT ) Papillary renal cell carcinoma is the most common of the non-clear cell renal cell carcinomas representing about 14% of kidney cancer. Approximately 366,000 new cases of kidney cancer were diagnosed globally in 2015, equating to about 50,000 cases of papillary renal cell carcinoma, with approximately half harboring c-met driven disease. No targeted therapies have been approved specifically for papillary renal cell carcinoma, and to date only modest efficacy in non-clear cell renal cell carcinoma has been reported in sub-group analyses of broader renal cell carcinoma studies of VEGFR (e.g., Sutent) and mammalian target of rapamycin (e.g., Afinitor) tyrosine kinase inhibitors, with objective response rates of <10% and median progression-free survival in first-line setting of four to six months and second-line setting of only one to three months (ESPN study, Tannir N. M. et al.). Based on the Phase II results we presented in early 2017, we initiated the SAVOIR study in June The SAVOIR study is a global Phase III, open-label, randomized, controlled trial evaluating the efficacy and safety of savolitinib, compared with sunitinib, in patients with c-met driven, unresectable, locally advanced or metastatic papillary renal cell carcinoma. C-Met status is confirmed by the novel targeted next-generation sequencing assay developed for savolitinib. Patients will be randomized in a 1:1 ratio to receive either continuous treatment with savolitinib 600 mg (400 mg if <50 kg) orally, once daily, or intermittent treatment with sunitinib 50 mg orally once daily (four weeks on/two weeks off), on a six-week cycle. The primary endpoint for efficacy in the SAVOIR study is median progression-free survival, with secondary endpoints of overall survival, objective response rate, duration of response, best percentage change in tumor size, disease control rate, and safety and tolerability. We expect to complete enrollment in late Furthermore, in order to fully understand the role of c-met driven disease in papillary renal cell carcinoma, we are currently conducting a global molecular epidemiology study. The molecular epidemiology study is in the process of screening, using our companion diagnostic, archived tissue samples from over 300 papillary renal cell carcinoma patients to identify c-met driven disease. Historical medical records from these patients will then be used to determine if c-met driven disease is predictive of worse outcome, in terms of progression-free survival and overall survival, in papillary renal cell carcinoma patients. If this is proven to be the case, we will consider engaging in discussions regarding Breakthrough Therapy potential with the U.S. FDA. Phase II study of multiple tyrosine kinase inhibitors in metastatic papillary renal cell carcinoma United States (Target Patient Population 2 in pipeline chart; Status: enrolling; NCT ) A Phase II study, sponsored by the U.S. National Cancer Institute, and named the PAPMET study, to assess the efficacy of multiple tyrosine kinase inhibitors in metastatic papillary renal cell carcinoma patients including Sutent, Cabometyx (cabozantinib), Xalkori (crizotinib) and savolitinib. PAPMET began enrolling patients in The PAPMET study is expected to enroll about 180 patients in over 70 locations in the United States with top-line data targeted for reporting in Phase II study of savolitinib (600 mg once daily) monotherapy and in combination with Imfinzi (anti-programmed death-ligand 1) in both papillary renal cell carcinoma and clear cell renal cell carcinoma patients U.K./Spain (Target Patient Populations 3, 4 and 5 in pipeline chart; Status: enrolling; NCT ) 75

76 The CALYPSO study, a dose finding study to assess safety/tolerability of savolitinib and Imfinzi combination therapy as well as preliminary efficacy of savolitinib as a monotherapy or combination therapy in several c-met driven kidney cancer patient populations, began at St. Bartholomew s Hospital in London in In 2016, the dose-finding phase of the CALYPSO study successfully established the combination dose of savolitinib and Imfinzi and the study moved on to the Phase II expansion stage in papillary renal cell carcinoma and clear cell renal cell carcinoma patients in the United Kingdom and Spain to further explore efficacy in Non-small Cell Lung Cancer Phase Ib/II expansion non-small cell lung cancer (second-line), EGFR tyrosine kinase inhibitorrefractory, savolitinib (600 mg once daily) in combination with Tagrisso Global (Target Patient Population 6 in pipeline chart; Status: enrolling; NCT ) In October 2016, at the European Society for Medical Oncology meeting, AstraZeneca presented preliminary proof-of-concept data from the TATTON study (Part A) on 17 evaluable first-generation EGFR tyrosine kinase inhibitor (Iressa/Tarceva) refractory second-line non-small cell lung cancer patients who had no prior exposure to third-generation EGFR tyrosine kinase inhibitors (Tagrisso/rocelitinib). Molecular analysis of both c-met and T790M status was completed for patients with sufficient available tumor tissue. Of patients treated with the savolitinib and Tagrisso combination, confirmed partial responses were reported in 4/5 (80% objective response rate) c-met positive/t790m negative patients and in 6/10 (60% objective response rate) c-met positive patients regardless of T790M status. In 2016, we initiated a global Phase Ib/II expansion study in second-line non-small cell lung cancer, called the TATTON study (Part B), aiming to recruit sufficient c-met gene amplified patients who had progressed after prior treatment with a first-generation EGFR inhibitor (Iressa/Tarceva) to support a decision on global Phase II/III registration strategy. In this first-generation EGFR tyrosine kinase inhibitor refractory non-small cell lung cancer population, we estimate that c-met gene amplification occurs in 15-20% of patients. Preliminary data from TATTON (Part B), in 34 evaluable patients, were presented at the 2017 World Conference on Lung Cancer and showed confirmed partial responses in 14/23 (61% objective response rate) of T790M mutation negative patients, as well as confirmed partial responses in 6/11 (55% objective response rate) of T790M mutation positive patients. AstraZeneca has recently decided to progress into the next stage of development in this indication, with plans outlined below. 76

77 Figure 7: Preliminary data from TATTON study (Part B) were compelling and consistent with the TATTON study (Part A) 9MAR Note: *Centrally confirmed MET-amplification (fluorescence in-situ hybridization, MET gene copy 5 or MET/CEP7 ratio 2) Phase Ib/II non-small cell lung cancer (third-line), EGFR/T790M tyrosine kinase inhibitor-refractory, savolitinib (600 mg once daily) in combination with Tagrisso Global (Target Patient Population 7 in pipeline chart; Status: enrolling; NCT ) The TATTON study (Part B) also enrolled third-line non-small cell lung cancer patients that had progressed after treatment with Tagrisso as a result of c-met gene amplification acquired resistance. Data presented in June 2017 at the American Society of Clinical Oncology, by Harvard Medical School and Massachusetts General Hospital Cancer Center showed that about 30% (7/23 patients) of Tagrissoresistant third-line non-small cell lung cancer patients harbor c-met gene amplification. This third-line patient population is generally heavily pre-treated and highly complex from a molecular analysis standpoint, with the study showing that more than half of the c-met gene amplification patients also harbored additional genetic alterations, including but not limited to, EGFR gene amplification and K-Ras mutations. The TATTON (Part B) study, presented at the 2017 World Conference on Lung Cancer, also included preliminary data in 30 evaluable patients previously treated with third-generation T790M-directed EGFR inhibitors, primarily Tagrisso. Confirmed partial responses were observed in 10/30 (33% objective response 77

78 rate) of these patients, and while this is lower than the 55-61% objective response rate in Target Patient Population 6, it was as expected given the additional driver genes at work post-tagrisso monotherapy failure. We believe that the savolitinib/tagrisso combination is an important treatment option for these late-stage patients who have no remaining targeted treatment alternatives. Tagrisso sales in 2017, only the second year since its launch, were $955 million. At current pricing, this would indicate that over 5,000 patients were treated with Tagrisso during 2017, thereby indicating that the market potential for savolitinib in third-line, Tagrisso resistant, non-small cell lung cancer could be material. Figure 8: The savolitinib/tagrisso combination could be an important treatment option for the third-line or above non-small cell lung cancer patients who have no remaining targeted treatment alternatives 2MAR Note: *Centrally confirmed MET-amplification (fluorescence in-situ hybridization, MET gene copy 5 or MET/CEP7 ratio 2) AstraZeneca decision on further development in Target Patient Populations 6 and 7 In December 2017, AstraZeneca s governance committee in oncology reviewed the TATTON (Part B) data that had been presented at the 2017 World Conference on Lung Cancer, to decide strategy for further development of the savolitinib and Tagrisso combination in first-generation (Iressa/Tarceva) and thirdgeneration (Tagrisso) EGFR-tyrosine kinase inhibitor refractory non-small cell lung cancer. At that time, while the above strong objective response rate data was available for the savolitinib (600 mg once daily) plus Tagrisso (80 mg once daily) combination dose regimen, neither median progression-free survival nor duration of response had been reached. Since then, both progression-free survival and duration of response have continued to mature. The safety profile of the combination is in line with previous reports for savolitinib (600 mg once daily) plus Tagrisso (80 mg once daily) and going forward, AstraZeneca has concluded that a weight-based dosing algorithm will be applied for the combination, similar to the dosing algorithm used in the SAVOIR Phase III study in papillary renal cell carcinoma. 78

79 Encouraged by the TATTON (Part B) data, AstraZeneca has decided to proceed with development in second-line non-small cell lung cancer (Target Patient Population 6 in the pipeline chart). Planning is now underway to initiate a global randomized chemotherapy-doublet (platinum plus Alimta) controlled study of the savolitinib plus Tagrisso combination in first-generation (Iressa/Tarceva) EGFR-tyrosine kinase inhibitor refractory, c-met driven and T790M negative non-small cell lung cancer patients. This second-line non-small cell lung cancer study, currently targeted to start in the second half of 2018, will start as a Phase II study until such time that regulatory discussions have taken place on dosing approach, and will be powered based on TATTON (Part B) for objective response rate and progression-free survival. To further support dosing approach ahead of regulatory discussions, AstraZeneca has already initiated TATTON (Part D), exploring savolitinib (300 mg once daily) dose combined with Tagrisso (80 mg once daily), to explore the lower dose in the context of maximizing tolerability of the combination for patients who could be on the combination for long periods of time. A second supporting study, a Phase II, aiming at strengthening the dose justification in EGFR-tyrosine kinase inhibitor refractory, c-met driven non-small cell lung cancer will also start in the second half of 2018, randomizing to either 300 mg savolitinib once daily plus Tagrisso (80 mg once daily) or 600 mg savolitinib (with weight-based dosing) once daily plus Tagrisso (80 mg once daily) with a primary endpoint of tolerability. Late in 2018 or early in 2019, and subject to the outcome of the mature TATTON (Part B) data as well as preliminary TATTON (Part D) results, we expect AstraZeneca to engage in regulatory discussions regarding our dosing approach for the savolitinib and Tagrisso combination as well as potential Breakthrough Therapy. These regulatory discussions will also enable AstraZeneca to decide development strategy in third-line non-small cell lung cancer (Target Patient Population 7 in the pipeline chart), defined as third-generation (Tagrisso) EGFR-tyrosine kinase inhibitor refractory, c-met gene amplified non-small cell lung cancer patients. Phase II non-small cell lung cancer (second-line), EGFR tyrosine kinase inhibitor-refractory, savolitinib (600 mg once daily) in combination with Iressa China (Target Patient Population 8 in pipeline chart; Status: completed; NCT ) At the 2017 World Conference on Lung Cancer, we presented Phase II proof-of-concept data assessing savolitinib in combination with Iressa in patients in China with EGFRm+ advanced non-small cell lung cancer with centrally confirmed c-met gene amplification who had progressed following firstgeneration EGFR inhibitor therapy. Preliminary results showed confirmed partial responses in 12/23 (52% objective response rate) of T790M mutation negative patients, as well as confirmed partial responses in 2/23 (9% objective response rate) of T790M mutation positive patients. The 52% objective response rate in T790M mutation negative patients was as expected and similar to that recorded in TATTON (Part B) for this target patient population, indicating that for these patients Iressa might be the most cost-efficient combination partner for savolitinib. The low 9% objective response rate in T790M mutation positive patients was also as expected, as Iressa does not effectively address T790M mutants. In terms of safety, the savolitinib plus Iressa combination dose was safe and well tolerated. With the launch of multiple lower-priced and reimbursed generic first-generation EGFR tyrosine kinase inhibitors in China in 2017, combined with the approximately 50% proportion of non-small cell lung cancer patients who harbor the EGFRm+, we believe there may be a surge in c-met gene amplified second-line non-small cell lung cancer patients in China over the coming years. We continue to discuss Phase III plans in this target patient population for the savolitinib/iressa combination in China with AstraZeneca and expect to reach agreement in

80 Figure 9: The savolitinib/iressa combination has demonstrated strong and durable response in Met+ (T790M-) patients MET testing confirmation Objective response rate, n (%) MET+ / T790M+ (n = 23) MET+ (T790M-) (n = 23) MET+ / T790M unknown (n = 5) Total (n = 51) Confirmed partial response 2 (9%) 12 (52%) 2 (40%) 16 (31%) Central Stable disease 6 weeks Progressive disease/death 9 (39%) 7 (30%) 7 (30%) 3 (13%) 2 (40%) 0 18 (35%) 10 (20%) Not evaluable 5 (22%) 1 (4%) 1 (20%) 7 (14%) MET+ (T790M-) MET+ / T790M+ PR PR PR PR PR PR PR PR PR PR PR PR PR PR 12 patients had PRs 7 patients were on treatment beyond 6 months 7 patients remain on treatment at cut-off 2 patients show PRs 3 patients were on treatment beyond 6 months 0 patients remain on treatment at cut-off Months on treatment 8MAR Note: 1. Cut-off as of August 21, 2017 Phase II c-met driven non-small cell lung cancer, savolitinib (600 mg once daily) monotherapy China (Target Patient Populations 9 and 10 in pipeline chart; Status: enrolling; NCT /NCT ) Phase II studies of savolitinib are also ongoing in non-small cell lung cancer and other lung cancer patient populations, focusing on those with c-met driven disease. Gastric Cancer Phase II gastric cancer studies are ongoing in China as well as the Phase II VIKTORY study, being conducted at Samsung Medical Center in South Korea, in which savolitinib is represented in two out of the 80

81 ten treatment arms. As of the latest report in 2017, a total of over 850 gastric cancer patients have been screened in these studies and those patients with confirmed c-met driven disease are being treated with either savolitinib monotherapy or savolitinib in combination with Taxotere. Presentations of preliminary data from these studies were made in 2017 at the Chinese Society of Clinical Oncology (China Phase II) and the American Society of Clinical Oncology (VIKTORY Phase II). In China as of June 2017, a total of 441 metastatic gastric cancer patients had been screened with 13.2% (58/441) determined to have aberrant c-met, of which 5.3% (23/438) were c-met gene amplified. A total of 31 patients in China have been enrolled to date in Target Patient Population 11 in the pipeline chart as discussed below. In South Korea as of January 2017, a total of 438 metastatic gastric cancer patients had been screened with 5.3% (23/438) being patients with c-met driven (gene amplification or over-expression) disease. A total of 23 patients in South Korea have been enrolled to date in Target Patient Populations 11, 12 and 13 in the pipeline chart as discussed below. Phase Ib gastric cancer, savolitinib monotherapy, patients with c-met gene amplification China and South Korea (Target Patient Population 11 in pipeline chart; Status: enrolling; NCT /NCT ) Preliminary results were presented at the 2017 Chinese Society of Clinical Oncology for the efficacy evaluable c-met gene amplified patients in China. Based on confirmed and unconfirmed partial responses, the objective response rate was 42.9% (3/7) and disease control rate was 85.7% (6/7), with objective response rate of 13.6% (3/22) and disease control rate of 40.9% (9/22) among the overall efficacy evaluable aberrant c-met set. As of data cut-off, the longest duration of treatment was in excess of two years. Savolitinib monotherapy was determined to be safe and well tolerated in patients with advanced gastric cancer. CTC grade 3 treatment emergent adverse events with greater than 5% incidence included abnormal hepatic function in 12.9% (4/31), gastrointestinal bleeding or decreased appetite in 9.7% (3/31 each), and diarrhea or gastrointestinal perforation in 6.4% (2/31 each). This China study concluded that savolitinib monotherapy demonstrated promising anti-tumor efficacy in gastric cancer patients with c-met gene amplification. We believe the potential benefit to these patients warrants further exploration, with Phase II enrollment continuing in China. The VIKTORY Phase II study is ongoing in c-met gene amplified patients in South Korea, with preliminary data likely to be presented at a major scientific conference in Phase II gastric cancer, savolitinib (600 mg once daily) in combination with Taxotere in c-met over-expression or c-met gene amplification South Korea (Target Patient Populations 12 and 13 in pipeline chart; Status: enrolling; NCT /NCT ) Phase II studies are underway to assess safety/tolerability of savolitinib and Taxotere combination as well as preliminary efficacy of the combination therapy in both c-met gene amplified patients and the approximately 40% of gastric cancer patients that harbor c-met over-expression. The VIKTORY Phase II study is ongoing in South Korea in Target Patient Populations 12 and 13, with preliminary data likely to be presented at a major scientific conference in Phase II metastatic castration-resistant prostate cancer, savolitinib monotherapy Canada (Target Patient Populations 14 in pipeline chart; Status: enrolling; NCT ) A Phase II study is sponsored by the Canadian Cancer Trials Group to determine the effect of savolitinib on prostate-specific antigen decline and time to prostate-specific antigen progression. The study will assess the objective response rate as determined by RECIST 1.1 criteria, evaluate the safety and toxicity profile of savolitinib in metastatic castration-resistant prostate cancer patients and identify potential predictive and prognostic factors. The umbrella study targets to enroll around 500 patients into six treatment arms based on molecular status, with patients with c-met-driven disease receiving savolitinib. High levels of c-met over expression can be prevalent in prostate cancer patients. 81

82 Partnership with AstraZeneca In December 2011, we entered into a global licensing, co-development, and commercialization agreement for savolitinib with AstraZeneca. Given the complexity of many of the signal transduction pathways and resistance mechanisms in oncology, the industry is increasingly studying combinations of targeted therapies (tyrosine kinase inhibitors, monoclonal antibodies and immunotherapies) and chemotherapy as potentially the best approach to treating this complex and constantly mutating disease. Based on savolitinib showing early clinical benefit as a highly selective c-met inhibitor in a number of cancers, in August 2016 we and AstraZeneca amended our global licensing, co-development, and commercialization agreement for savolitinib. We believe that AstraZeneca s portfolio of proprietary targeted therapies is well suited to be used in combinations with savolitinib, and we are studying combinations with Iressa (EGFRm+), Tagrisso (T790M+) and anti-programmed death-ligand 1 antibody Imfinzi. These combinations of multiple global first-in-class compounds are difficult to replicate, and we believe represent a significant opportunity for us and AstraZeneca. For more information regarding our partnership with AstraZeneca, see Overview of Our Collaborations. Fruquintinib VEGFR 1, 2 and 3 Inhibitor When we established our medicinal chemistry research platform in 2005, our first priority area of interest was to discover drug candidates to overcome the shortcomings of a few drugs or drug candidates that were in late-stage clinical development at the time, but had a well understood mechanism of action. As a result, we developed fruquintinib (also known as HMPL-013), a VEGFR inhibitor that we believe is highly differentiated due to its superior kinase selectivity compared to other small molecule VEGFR inhibitors, which can be prone to excessive off-target toxicities. Fruquintinib only inhibits VEGFR1, 2 and 3, resulting in fewer off-target toxicities, thereby allowing for better target coverage, as well as possible use in combination with other agents such as chemotherapies, targeted therapies and immunotherapies. We believe these are meaningful points of differentiation compared to other approved small molecule VEGFR inhibitors such as Sutent, Nexavar and Stivarga, and can potentially significantly expand the use and market potential of fruquintinib. Consequently, we believe that fruquintinib has the potential to become the global best-in-class small molecule VEGFR inhibitor for many types of solid tumors. Mechanism of Action During the pathogenesis of cancer, tumors at an advanced stage can secrete large amounts of VEGF, a protein ligand, to stimulate formation of excessive vasculature (angiogenesis) around the tumor in order to provide greater blood flow, oxygen, and nutrients to fuel the rapid growth of the tumor. Since essentially all solid tumors require angiogenesis to progress beyond a few millimeters in diameter, anti-angiogenesis drugs have demonstrated benefits in a wide variety of tumor types. VEGF and other ligands can bind to three VEGF receptors, VEGFR1, 2 and 3, each of which has been shown to play a role in angiogenesis. Therefore, inhibition of the VEGF/VEGFR signaling pathway can act to stop the growth of the vasculature around the tumor and thereby starve the tumor of the nutrients and oxygen it needs to grow rapidly. This therapeutic strategy has been well validated with several first-generation VEGF inhibitors having been approved globally since 2005 and These include both small molecule tyrosine kinase inhibitor drugs such as Nexavar and Sutent as well as monoclonal antibodies such as Avastin (bevacizumab). The success of these drugs validated VEGFR inhibition as a new class of therapy for the treatment of cancer. 82

83 Fruquintinib Pre-clinical Evidence Potency and Selectivity Pre-clinical studies have demonstrated that fruquintinib is a highly selective VEGFR inhibitor with high potency and low cell toxicity at the enzymatic and cellular levels. Fruquintinib has been studied in nude mice models bearing various human tumors and has shown significant inhibition of tumor growth, with human gastric cancer showing the strongest sensitivity. A daily dose of 2 mg/kg was found to almost completely inhibit tumor growth in mice models. As a result of off-target side effects, existing VEGFR inhibitors are often unable to be dosed high enough to completely inhibit VEGFR, the intended target. In addition, the complex off-target toxicities resulting from inhibition of multiple signaling pathways are often difficult to be managed in clinical practice. Combining such drugs with chemotherapy can lead to severe toxicities that can cause more harm than benefit to patients. To date, the first generation VEGFR tyrosine kinase inhibitors are rarely used in combination with other therapies, thereby limiting their potential. Because of the potency and selectivity of fruquintinib, we believe that it has the potential to be safely combined with other anti-cancer drugs, which could significantly expand its clinical potential. The pharmacokinetic properties of fruquintinib in patients have also been found to have high drug exposures at the optimal 5 mg daily dose of approximately 6,000 h*ng/ml (i.e., hours multiplied by nanogram per milliliter, which is a measurement of drug exposure over time), well above the exposure of 898 h*ng/ml required to cover the VEGFR target to EC 50 levels in mouse models, suggesting potentially strong target coverage in humans at this dose. At this dose, we expect fruquintinib to fully inhibit VEGFR for an entire day through a single oral dose based on modeling using pre-clinical data. In contrast, Sutent achieved a drug exposure of only 592 h*ng/ml at the maximum tolerated dose of 50 mg per day, which is well below the drug exposures required for target inhibition determined in its pre-clinical models of 2,058 h*ng/ml, suggesting insufficient target coverage in humans. Fruquintinib Early and Completed Clinical Development As discussed below, we have completed various clinical trials of fruquintinib in China. Phase I dose escalation study in patients with advanced solid tumors in China This study was initiated in January 2011, and results were presented at the American Association for Cancer Research s meeting in 2013 and subsequently published in Cancer Chemotherapy and Pharmacology in August A total of 40 subjects with advanced solid tumors were enrolled in this clinical study. The primary endpoint was evaluation of safety during the first 28-day cycle of therapy following the initiation of multiple dosing of fruquintinib. The safety variables evaluated in this study were adverse events, physical examinations, vital signs (specifically including blood pressure), clinical laboratory evaluations including serum chemistry, hematology, urinalysis (with detailed sediment analysis, proteinuria, and 24-hour urine for collection of protein), and electrocardiograms. Most adverse events were considered mild and graded as CTC grade 1 or 2. Adverse events CTC grade 3 with greater than 5% incidence related to fruquintinib treatment were hypertension (17.5%), hand-foot syndrome (17.5%), thrombocytopenia (12.5%), diarrhea (7.5%), fatigue (7.5%) and proteinuria (5.0%). Furthermore, the Phase I study validated in humans the pre-clinical pharmacokinetic animal model findings of fruquintinib s ability to provide strong target coverage. The chart below shows that fruquintinib fully inhibits VEGFR in humans for the entire day at the optimal 5 mg daily dose level. 83

84 Figure 10: Fruquintinib plasma concentration in humans following once daily dosing in comparison to effective concentrations (EC) of fruquintinib required for VEGFR2 phosphorylation (activation) inhibition in mouse 600 Plasma Concentration (ng/ml) EC80 (>80% pvegfr inhibition) 100 Time (h) Day=28, 2mg QD Day=14, 5mg QD Day=14, 2mg QD Day=14, 6mg QD EC50 (>50% pvegfr inhibition) Day=14, 4mg QD 9MAR Source: Chi-Med Phase I study data for fruquintinib Note: EC 50 = concentration of a drug that gives 50% of maximal response; EC80 = concentration of a drug that gives 80% of maximal response Tumor response and progression were evaluated using the Response Evaluation Criteria in Solid Tumors version 1.0. In terms of efficacy, in the entire intent-to-treat population of 40 subjects, 14 had confirmed partial response, 14 had stable disease, six had progressed disease, and six were not evaluable. The objective response rate was 41% in the 34 evaluable patients and 35% in the entire intent-to-treat population of 40 patients, and the disease control rate was 82% among evaluable patients and 70% in the intent-to-treat population. Out of the 34 evaluable patients, only six patients had tumor growth, with the rest experiencing substantial tumor shrinkage. In this Phase I study, clear tumor response was observed in multiple tumor types, consistent with the fact that angiogenesis, driven by VEGFR activation, accelerates the growth of tumors in many settings. The highest objective response rate in this Phase I study was achieved in non-small cell lung cancer and gastric cancer patients with objective response rates of over 50%. However, we also observed objective response rates of approximately 30% in colorectal and breast cancer patients. As a result of this study, we determined that either 4 mg once daily or 5 mg once daily on a 3-weeks-on/1-week-off basis was safe and tolerable. This study also found that doses above 4 mg once daily achieved drug exposures well above EC80 (the concentration that leads to an 80% maximal response) of the VEGFR phosphorylation inhibition over a 24-hour time period. 84

85 Studies in Colorectal Cancer Phase Ib and II studies in third-line or above metastatic colorectal cancer patients in China In December 2012, we initiated a Phase Ib study in patients with advanced colorectal cancer to compare the safety and tolerability of a 5 mg once daily 3-weeks-on/1-week-off regimen versus a 4 mg continuous once daily regimen. The study was divided into a randomized comparison study with 20 patients taking each regimen. The primary endpoint was the incidence of adverse effects, including significant adverse events, CTC grades 3 or 4 adverse effects and adverse effects that lead to dose interruption or dose discontinuation. In this study, both dose regimens demonstrated similar clinical efficacy and safety profile with the 5 mg once daily 3-weeks-on/1-week-off regimen showing slightly more favorable results. An additional 22 patients were subsequently enrolled into the 5 mg once daily 3-weeks-on/1-week-off regimen to further confirm the safety and tolerability of this regimen. As a result of this study, we determined the recommended Phase II dose regimen to be 5 mg, once daily, on a 3-weeks-on/1-week-off basis. Full results of this study were presented at the American Society of Clinical Oncology s annual meeting in In August 2014, we completed enrollment for a Phase II, double-blind, placebo-controlled, multicenter study in China in just over four months to test fruquintinib as a monotherapy among third-line metastatic colorectal cancer patients, using the 5 mg daily, 3-weeks-on/1-week-off dose regimen determined from our Phase I study discussed above. The goal of this study was to compare the efficacy, including progression-free survival, of fruquintinib versus placebo in metastatic colorectal cancer patients who failed at least two prior lines of treatment, including fluorouracil, oxaliplatin and irinotecan. A total of 71 patients were enrolled, with 47 in the fruquintinib arm and 24 in the placebo arm, respectively. Patient baseline characteristics were similar between the two treatment arms. Fruquintinib demonstrated strong anti-tumor activity in this study. Median progression-free survival was 4.7 months in the fruquintinib arm compared to median progression-free survival of 1.0 month in the placebo arm (hazard ratio = 0.30 (p<0.001)). Hazard ratio is the probability of an event (such as disease progression or death) occurring in the treatment arm divided by the probability of the event occurring in the control arm of a study, with a ratio of less than one indicating a lower probability of an event occurring for patients in the treatment arm. P-value is a measure of the probability of obtaining the observed sample results, with a lower value indicating a higher degree of statistical confidence in these studies. The disease control rate in the fruquintinib arm was 68.1% compared with 20.8% in the placebo arm (p<0.001). The interim median overall survival rate was 7.6 months and 5.5 months in the fruquintinib arm and the placebo arm, respectively. In this study, fruquintinib has not shown any major unexpected safety issues and clearly met its primary endpoint of progression-free survival. The result of 4.7 months in median progression-free survival compares favorably with results recorded to date in third-line colorectal cancer in trials involving VEGFR tyrosine kinase inhibitors. The safety profile in this study was also consistent with our Phase Ib trial for fruquintinib in third-line metastatic colorectal cancer patients. The full results of this study were presented at the European Cancer Congress in September Phase III study in colorectal cancer (third-line), fruquintinib monotherapy China (Target Patient Population 15 in pipeline chart; Status: NDA submitted in June 2017; NCT ) In December 2014, we initiated the FRESCO trial, which is a randomized, double-blind, placebocontrolled, multi-center, Phase III pivotal trial in patients with locally advanced or metastatic colorectal cancer who have failed at least two prior systemic antineoplastic therapies, including fluoropyrimidine, oxaliplatin and irinotecan. No drugs had been approved in third-line colorectal cancer in China with best supportive care being the general standard of care. Enrollment was completed in May 2016 and 519 patients were screened. The intent-to-treat population of 416 patients was randomized at a 2:1 ratio to receive either: 5 mg of fruquintinib orally once daily, on a three-weeks-on/one-week-off cycle, plus best supportive care (278 patients) or placebo plus best supportive care (138 patients). Randomization was stratified for prior anti-vegf therapy and K-Ras gene status. The trial concluded in January

86 In June 2017, we highlighted the results of the FRESCO study in an oral presentation during the American Society of Clinical Oncology Annual Meeting held in Chicago. Results showed that FRESCO met all primary and secondary endpoints including significant improvements in overall survival and progression-free survival with a manageable safety profile and lower off-target toxicities compared to other targeted therapies. The primary endpoint of median overall survival was 9.30 months (95% confidence interval: ) in the fruquintinib group versus 6.57 months (95% confidence interval: ) in the placebo group, with a hazard ratio of 0.65 (95% confidence interval: ; two-sided p<0.001). The secondary endpoint of median progression-free survival was 3.71 months (95% confidence interval: ) in the fruquintinib group versus 1.84 months (95% confidence interval: ) in the placebo group, with a hazard ratio of 0.26 (95% confidence interval: ; two-sided p<0.001). Significant benefits were also seen in other secondary endpoints. The disease control rate in the fruquintinib group was 62.2% versus 12.3% for placebo (p<0.001), while the objective response rate based on confirmed responses was 4.7% versus 0% for placebo (p=0.012). Probability of overall survival Figure 11: Phase III study in China of fruquintinib monotherapy in third-line colorectal cancer. FRESCO clearly succeeded in meeting the primary efficacy endpoint of OS Fruquintinib + BSC Placebo + BSC Fruquintinib + BSC (N=278) Placebo + BSC (N=138) Median (months) % CI Stratified HR (95% CI) 0.65 ( ) p-value < Months 28FEB In terms of safety, results showed that fruquintinib had a manageable safety profile with lower off-target toxicities compared to other VEGFR tyrosine kinase inhibitors. Of particular interest was that the CTC grade 3 hepatotoxicity was similar for the fruquintinib group as compared to the placebo group, which is in contrast to Stivarga which was markedly worse and often difficult to manage in this patient population in the CONCUR study. The most frequently reported fruquintinib-related CTC grade 3 adverse events included hypertension (21.2%), hand-foot skin reaction (10.8%), proteinuria (3.2%) and diarrhea (2.9%), all possibly associated with VEGFR inhibition. No other CTC grade 3 adverse events exceeded 1.4% in the fruquintinib population, including hepatic function adverse events such as elevations in bilirubin (1.4%), alanine aminotransferase (0.7%) or aspartate aminotransferase (0.4%). In terms of tolerability, dose interruptions or reductions occurred in only 35.3% and 24.1% of patients in the fruquintinib arm, respectively, and only 15.1% of patients discontinued treatment of fruquintinib due to adverse events versus 5.8% for placebo. In June 2017, the CFDA acknowledged acceptance of the NDA for fruquintinib for the treatment of patients with advanced colorectal cancer. Fruquintinib was subsequently awarded priority review status in view of its clinical value, according to a CFDA announcement in September

87 Studies in Non-small Cell Lung Cancer Phase II fruquintinib monotherapy in non-small cell lung cancer in China In June 2014, we initiated a Phase II randomized, double-blind, placebo-controlled, multi-center study of fruquintinib versus placebo among patients with advanced non-squamous non-small cell lung cancer who failed two lines of chemotherapy. By early March 2015, enrollment had been completed with a total of 91 patients randomized to 5 mg of fruquintinib orally once per day, on a 3-weeks-on/1-week-off regimen plus best supportive care, or placebo plus best supportive care at a 2:1 ratio. In September 2015, we reported that fruquintinib had clearly met its primary endpoint of superior median progression-free survival versus placebo in this study, and in December 2016, we reported the full data from this study at the 2016 World Conference on Lung Cancer, which showed median progression-free survival of 3.8 months for the fruquintinib group compared with 1.1 months for the placebo group (hazard ratio=0.34; 95% confidence interval: ; p<0.001), an objective response rate based on confirmed partial responses of 13.1% for the fruquintinib group compared with 0.0% for the placebo group (p=0.041), and a 47.5% increase in disease control rate for the fruquintinib group compared with the placebo group (p<0.001). All were assessed by blinded independent clinical review. Fruquintinib was well tolerated with treatment related CTC grade 3 adverse events with greater than 5% incidence being hypertension (8.1%). Figure 12: Phase II study in China of fruquintinib monotherapy in third-line non-small cell lung cancer. This study clearly met the median progression-free survival primary endpoint. Source: Chi-Med 28FEB Studies in Gastric Cancer Phase Ib/II study of fruquintinib combined with Taxol in second-line gastric cancer patients in China In early 2017, we completed an open label, multi-center Phase Ib dose finding/expansion study of fruquintinib in combination with Taxol in second-line gastric cancer. As of September 10, 2016, a total of 32 patients were enrolled in the study and the recommended dose was determined to be 4 mg once daily on 87

88 a 3-weeks-on/1-week-off schedule in combination with a weekly dose of 80 mg/m 2 of Taxol. A total of 28 out of the 32 patients were efficacy evaluable with an objective response rate of 36% (10/28, based on confirmed partial responses) and a disease control rate of 68% (19/28). At the recommended dose, progression-free survival of 16 weeks was 50% of and overall survival of 7 months was 50%. Tolerability of the recommended dose combination was as expected. In the drug expansion stage, CTC grade 3 adverse events with greater than 5% incidence related to the treatment were neutropenia (57.9%), leukopenia (21.0%), hypertension (10.6%), decreased platelet count (5.3%), anemia (5.3%), hand-foot skin reaction (5.3%), mucositis oral (5.3%), hepatic disorder (5.3%), and upper gastrointestinal hemorrhage (5.3%), while neutropenia and leukopenia are common Taxol adverse events. The combination regime resulted in an approximately 30% increase in Taxol exposure in patients indicating the potential to decrease the required dose of Taxol in future development. In October 2017, based on the Phase Ib data, we initiated FRUTIGA, a pivotal Phase III clinical trial of fruquintinib in combination with Taxol in second-line gastric cancer. Updated results are expected to be published in an upcoming scientific journal. Figure 13: Phase Ib/II study of fruquintinib combined with Taxol in gastric cancer. Phase III initiation made on the basis of these encouraging efficacy data. Source: Chi-Med Note: As of November 30, MAR Fruquintinib Current Clinical Development and Near-Term Plans As discussed below, we currently have various clinical trials of fruquintinib ongoing in China and the United States. In partnership with Eli Lilly in China, we are conducting a Phase III study of fruquintinib in third-line non-small cell lung cancer patients, a Phase II study of fruquintinib in combination with Iressa in first-line non-small cell lung cancer patients, and a Phase III study of fruquintinib in combination with Taxol in second-line gastric cancer patients. In the United States, we have initiated Phase I study to evaluate the safety, tolerability and pharmacokinetics of fruquintinib in U.S. patients with advanced solid tumors. 88

89 Studies in Colorectal Cancer Since completing submission of the NDA to the CFDA in early June 2017, we have engaged with the Center for Drug Evaluation to conduct reviews in the areas of (i) pharmacology and toxicity, (ii) clinical data and statistical analysis, and (iii) chemistry, manufacturing and control of standards and process. We have also facilitated the conduct of clinical site visits including GCP and good laboratory practice inspections. We are currently entering in the pre-approval inspection process for our active pharmaceutical ingredient contract manufacturer as well as the pre-approval inspection and GMP-certification process for our Suzhou formulation facility. Studies in Non-small Cell Lung Cancer Phase III fruquintinib monotherapy in non-small cell lung cancer (third-line) China (Target Patient Population 16 in pipeline chart; Status: enrollment complete; NCT ) Following a positive Phase II study comparing fruquintinib with placebo in advanced non-squamous non-small cell lung cancer patients who have failed two prior systemic chemotherapies, or third-line non-small cell lung cancer, we initiated a Phase III registration study, the FALUCA study, in December In February 2018, we completed enrollment of the FALUCA study in China, in which a total of 527 patients were randomized at a 2:1 ratio to receive either 5 mg of fruquintinib orally once daily, on a 3-weeks-on/1-week-off cycle plus best supportive care, or placebo plus best supportive care. The primary endpoint for FALUCA is overall survival, with secondary endpoints including progression-free survival, objective response rate, disease control rate and duration of response. We expect to reach median overall survival endpoint maturity and report top-line results in late Phase II study of fruquintinib in combination with Iressa in non-small cell lung cancer (first-line) China (Target Patient Population 17 in pipeline chart; Status: enrolling; NCT ) In early 2017, we initiated a multi-center, single-arm, open-label, dose-finding, Phase II study of fruquintinib in combination with Iressa in the first-line setting for patients with advanced or metastatic non-small cell lung cancer with EGFRm+. We have enrolled about 50 patients in this study with the objective to evaluate the safety and tolerability as well as efficacy of the combination therapy. Preliminary data were presented at the 2017 World Conference on Lung Cancer, with the 8 (31%) CTC grade 3 treatment emergent adverse events being increased alanine aminotransferase (19%), increased aspartate aminotransferase (4%), proteinuria (4%) and hypertension (4%). There were no serious adverse events or those that lead to death. Preliminary results in 17 efficacy evaluable patients showed an objective response rate of 76% (13/17), including 9 confirmed and 4 unconfirmed partial responses at the time of data cut-off, as well as a disease control rate of 100% (17/17). Fruquintinib s safety and tolerability profile, resulting from its high kinase selectivity, combined with flexibility to adjust dosage to manage treatment emergent toxicities due to its shorter half-life versus monoclonal antibody therapies, along with its potent anti-angiogenic effect, makes it a high potential combination partner for EGFR tyrosine kinase inhibitors. Subject to continued positive data in Target Patient Population 17, we will consider Phase III registration studies both inside and outside of China. 89

90 Figure 14: Phase II study of fruquintinib combined with Iressa in non-small cell lung cancer. Preliminary data showed promising efficacy in the first-line setting. 4MAR Phase I fruquintinib monotherapy in advanced solid tumors United States (Target Patient Population 18 in pipeline chart; Status: enrolling; NCT ) In December 2017, we initiated a multi-center, open-label, Phase I clinical study to evaluate the safety, tolerability and pharmacokinetics of fruquintinib in U.S. patients with advanced solid tumors. Upon completion, likely late in 2018, our intention is to begin exploring multiple innovative combination studies of fruquintinib and other tyrosine kinase inhibitors, chemotherapy and immunotherapy agents in the United States. Studies in Gastric Cancer Phase III study of fruquintinib in combination with Taxol in gastric cancer (second-line) China (Target Patient Population 19 in pipeline chart; Status: enrolling) In October 2017, we initiated the FRUTIGA study, a pivotal Phase III clinical trial of fruquintinib in combination with Taxol for the treatment in advanced gastric or gastroesophageal junction adenocarcinoma patients in China. This randomized, double-blind, placebo-controlled, multi-center trial is being conducted in patients with advanced gastric cancer who have progressed after first-line standard chemotherapy. Over 500 patients will be enrolled in the FRUTIGA study to evaluate the efficacy and safety of fruquintinib combined with paclitaxel compared with paclitaxel monotherapy for second-line treatment of advanced gastric or gastroesophageal junction adenocarcinoma. The trial will enroll patients with disease that has been confirmed through histology or cytology and who did not respond to first-line standard chemotherapy containing platinum and fluorouracil. All subjects will receive fruquintinib or placebo combined with paclitaxel. Patients will be randomized at a 1:1 ratio and stratified according to factors such as stomach versus gastroesophageal junction tumors and ECOG performance status, a scale established by the Eastern Cooperative Oncology Group which determines ability of patient to tolerate therapies in serious illness, specifically for chemotherapy. An independent data monitoring committee will be established to review safety and efficacy data. The primary efficacy endpoint is overall survival. Secondary efficacy endpoints include progression-free survival, objective response rate, disease control rate, duration of response and quality-of-life score (EORTC QLQ-C30, version 3.0). Biomarkers related to the antitumor activity of fruquintinib will also be explored. We intend to conduct an interim analysis of the FRUTIGA study for futility some time during

91 Advanced gastric cancer is a major medical need, particularly in Asian populations, with limited treatment options for patients who have failed first-line standard chemotherapy with 5-fluorouracil and platinum doublets. For gastric cancer, there are approximately 679,100 new cases and 498,000 deaths in China each year. Partnership with Eli Lilly In October 2013, we entered into a license agreement with Eli Lilly in order to accelerate and broaden our fruquintinib development program in China. As a result, we were able to quickly expand the clinical development of fruquintinib in three indications with major unmet medical needs in China: colorectal cancer, non-small cell lung cancer and gastric cancer, as discussed above. Contingent upon strong proof-of-concept and Phase III results in our clinical trials in China, Eli Lilly and Company (Eli Lilly s parent company) may exercise the option to help us develop fruquintinib globally under an option agreement into which we entered in connection with the license agreement. Support from Eli Lilly has also helped us to establish our manufacturing (formulation) facility in Suzhou, China, which now produces Phase III clinical supplies and will be used to produce fruquintinib for commercial supply, if approved. For more information regarding our partnership with Eli Lilly and Eli Lilly and Company, see Overview of Our Collaborations. Sulfatinib VEGFR, FGFR1 and CSF-1R Inhibitor As with fruquintinib, sulfatinib (also known as HMPL-012) was created as part of our initial research goals to develop better, more selective inhibitors than what was under late-stage development at the time, including inhibitors targeting VEGFR and FGFR, two tyrosine kinase receptors associated with angiogenesis and tumor growth. In early 2008, we declared our first small molecule oncology drug candidate, sulfatinib, and it was subsequently the first new compound IND application to be submitted, reviewed and approved by the CFDA under its green channel fast-track approval process. Sulfatinib is an oral small molecule angio-immuno kinase inhibitor targeting VEGFR, FGFR1 and CSF-1R kinases that could simultaneously block tumor angiogenesis and immune evasion. Its unique angio-immuno kinase profile seems to support sulfatinib as an attractive candidate for exploration of possible combinations with checkpoint inhibitors against various cancers. Sulfatinib is currently in development as a single agent for neuroendocrine tumors, thyroid cancer and biliary tract cancer. It also has potential in other tumor types such as breast cancer with FGFR1 activation. Our expanded Phase I data indicated that sulfatinib has the highest objective response rate reported to date in patients with neuroendocrine tumors. An objective response rate of 38.1% in the intent-to-treat population was observed for sulfatinib in this study, compared to less than 10.0% for Sutent and Afinitor, the two approved single agent therapies for neuroendocrine tumors. Sulfatinib is the first oncology candidate that we have taken through proof-of-concept in China and expanded globally ourselves. We believe sulfatinib has the potential to receive Breakthrough Therapy designation for the treatment of neuroendocrine tumors if in the U.S. Phase II study we are able to achieve an objective response rate in line with that seen to date. A U.S. Phase I study is close to completion and we are planning a proof-of-concept study in neuroendocrine tumors in the United States. Mechanism of Action Both VEGFR and FGFR signaling pathways can mediate tumor angiogenesis. CSF-1R plays an important role on functions of macrophages. Recently, the roles in increasing tumor immune evasion of VEGFR, FGFR in regulation of T cells, tumor-associated macrophages and myeloid-derived suppressor cells have been demonstrated. Therefore, blockade of tumor angiogenesis and tumor immune evasion by 91

92 simultaneously targeting VEGFR, FGFR and CSF-1R kinases may represent a promising approach for anti-cancer therapy. For more information on the VEGF mechanism of action, see Our Clinical Pipeline Fruquintinib VEGFR 1, 2 and 3 Inhibitor Mechanism of Action. Sulfatinib Pre-clinical Evidence Sulfatinib inhibited VEGFR1, 2, and 3, FGFR1 and CSF-1R kinases with IC 50 in a range of 1 nm to 24 nm. It also strongly blocked VEGF-induced VEGFR2 phosphorylation in HEK293KDR cells and CSF-1R phosphorylation in RAW264.7 cells with an IC 50 of 2 nm and 79 nm, respectively. Sulfatinib also reduced VEGF- or FGF-stimulated human umbilical vein endothelial cell proliferation with an IC50 < 50 nm. In animal studies, a single oral dose of sulfatinib inhibited VEGF-stimulated VEGFR2 phosphorylation in lung tissues of nude mice in an exposure-dependent manner. Furthermore, elevation of FGF23 levels in plasma 24 hours post dosing suggested suppression of FGFR signaling. Sulfatinib demonstrated potent tumor growth inhibition in multiple human xenograft models and decreased cluster of differentiation 31 expression remarkably, suggesting strong inhibition on angiogenesis through VEGFR and FGFR signaling. In a syngeneic murine colon cancer model, sulfatinib demonstrated moderate tumor growth inhibition after single-agent treatment. Flow cytometry and immunohistochemistry analysis revealed an increase of certain T cells and a significant reduction in certain tumor-associated macrophages, including CSF-1R mutation positive tumor-associated macrophages in tumor tissue, indicating sulfatinib has a strong effect on CSF-1R. Interestingly, a combination of sulfatinib with a programmed death-ligand 1 antibody resulted in enhanced anti-tumor effect. These results suggested that sulfatinib has a strong effect in modulating angiogenesis and cancer immunity. Sulfatinib Early and Completed Clinical Development As discussed below, we have completed two clinical trials of sulfatinib in China. First-in-human Phase Ia trial The multi-center, open-label, dose escalation, first-in-human Phase I study of sulfatinib was initiated in China in April Its primary objective was to study the safety and tolerability and determine the maximum tolerated dose or the recommended Phase II dose of sulfatinib in patients with advanced malignant solid tumors. Secondary endpoints included pharmacokinetic properties and clinical efficacy. The study consisted of a dose escalation period and dose expansion period. The initial sulfatinib dose was 50 mg, once daily. By April 2014, 12 dose groups of mg sulfatinib per day had completed the dose escalation study. The maximum tolerated dose was not reached. However, the drug exposures appeared to stop increasing in proportion to dose from 300 mg to 350 mg. In addition, encouraging activity was seen both at 300 and 350 mg doses. A dose expansion study was conducted at the 300 mg and 350 mg dose levels to further investigate the safety, tolerability and pharmacokinetic profile, and preliminary efficacy of sulfatinib. Final results as of July 2015 were published in Oncotarget in February A total of 77 patients were enrolled in the study. The first 43 patients were enrolled in sulfatinib, formulation 1, in 50 mg, 75 mg, 110 mg, 150 mg, 200 mg, 265 mg and 300 mg once daily, as well as 125 mg and 150 mg twice daily dose cohorts. As the study progressed, a new milled formulation, formulation 2, was developed with an improved pharmacokinetic profile to replace formulation 1 and was used in the remaining study. There was no subject treated with sulfatinib cross-over by formulations (i.e., no subject receiving formulation 1 had crossed over to formulation 2 during study treatment). A total of 34 patients were enrolled and treated with sulfatinib formulation of the patients were enrolled in the formulation 2 dose escalation study in dose cohorts of 200 mg, 300 mg and 350 mg once daily, and a further 11 were enrolled in an expansion study in dose cohorts of 300 mg and 350 mg once daily. All 34 patients on 92

93 formulation 2 completed the safety and pharmacokinetic evaluation. The maximum tolerated dose was also not reached in this formulation. CTC grade 3 adverse events observed in formulation 2 patients with greater than 5% incidence include proteinuria (14.7%), hypertension (8.8%), increased aspartate aminotransferase (5.9%), diarrhea (5.9%), decreased hemoglobin (5.9%), decreased platelet count (5.9%) and hypophosphatemia (5.9%). No dose-limiting toxicity was observed, and maximum tolerated dose has not been determined. Overall, in this Phase I dose escalation study, sulfatinib showed a safety profile that is comparable to the other drugs in the same class and that, as a single agent, it was well tolerated in patients with advanced solid tumors. Pharmacokinetic analyses showed that the inter- and intra-individual variability in drug concentration was optimized and the exposures in terms of Cmax, or the maximum concentration that a drug achieves in a specified test area of the body after the drug has been administrated and prior to the administration of a second dose, and AUC were increased compared with formulation 2, indicating optimized oral absorption. Phase Ia pharmacokinetic profile of sulfatinib in humans was consistent with pre-clinical findings in that sulfatinib at the 300 mg Phase II dose provides for consistent and sustained target inhibition over 24 hours through an oral dose. In terms of Phase Ia efficacy, among 34 patients treated with formulation 2, 28 patients were evaluable by Response Evaluation Criteria in Solid Tumors Version 1.0 criteria, of which nine achieved confirmed partial response, including one patient with hepatocellular carcinoma receiving sulfatinib 200 mg once daily, and eight with neuroendocrine tumors receiving sulfatinib 300 or 350 mg once daily. There were 15 patients with stable disease (10 with neuroendocrine tumors, three with hepatocellular carcinoma, one with gastrointestinal stromal tumors, and one with an abdominal malignancy) and four patients with progressive disease. Based on confirmed responses, the objective response rate amongst all patients treated with sulfatinib formulation 2 was 26.5% (9/34) and the disease control rate was 70.6% (24/34), or an objective response rate of 32.1% (9/28) and a disease control rate was 85.7% (24/28) amongst efficacy evaluable formulation 2 patients. The recommended Phase II dose was determined to be 300 mg once daily based on overall safety, tolerability and early clinical efficacy results. Favorable clinical efficacy has been seen with sulfatinib in patients with neuroendocrine tumors. The formulation 2 expansion study was conducted in neuroendocrine tumor patients who were given 300 mg or 350 mg once daily. Including dose escalation patients, a total of 21 neuroendocrine tumor patients were treated with formulation 2. There were eight confirmed partial response patients, 10 stable disease patients, and three patients were not evaluable for response. This yielded an objective response rate of 44.4% in the 18 evaluable neuroendocrine tumor patients and 38.1% in the entire intent-to-treat population of 21 neuroendocrine tumor formulation 2 patients (compared to an objective response rate of less than 10% for competing products, Sutent and Afinitor). The tumor origins of the eight neuroendocrine tumor patients with partial responses include pancreas (three patients), duodenum (one patient), rectum (one patient) and thymus (one patient), with the remaining two patients tumors of unknown origin. Furthermore, neuroendocrine tumor responses to sulfatinib have been observed to improve gradually with time. This early preliminary clinical efficacy of sulfatinib compares favorably to existing drugs approved for the treatment of neuroendocrine tumors. As shown below, however, approved therapies for neuroendocrine tumors are very limited with Afinitor and Sutent approved only for pancreatic neuroendocrine tumors (representing less than 10% of total neuroendocrine tumors) and showing an objective response rate of less than 10% compared to 38% for sulfatinib. The somatostatin analogues octreotide and lanreotide are also approved for narrow subsets of gastrointestinal neuroendocrine tumors, but their objective response rate is less than 5%. In January 2018, the FDA approved Lutathera (lutetium Lu 177 dotatate) injection, a radiolabeled somatostatin analog which, like octreotide and lanreotide, is indicated for the treatment of somatostatin receptor-positive neuroendocrine tumors (gastroenteropancreatic in the case of Lutathera), and has a half-life of less than seven days. Sulfatinib s 93

94 superior objective response rate, and apparent efficacy across many different neuroendocrine tumor types, as compared to existing approved therapies, are the basis for our view that sulfatinib could potentially be eligible for Breakthrough Therapy designation. Phase Ib/II study in neuroendocrine tumors (first-line), sulfatinib monotherapy (300 mg) in China In early 2015, we began a 30-patient, 300 mg daily, Phase Ib study in China in broad spectrum neuroendocrine tumor patients (pancreatic, gastrointestinal, liver, lymph and lung, among others) which, due to the major unmet medical need and strong efficacy of sulfatinib, was expanded to over 65 patients and enrollment was completed in August We then amended the protocol from a Phase Ib study to a single arm Phase II study for which enrollment of 81 patients (41 with pancreatic neuroendocrine tumors and 40 with extra-pancreatic neuroendocrine tumors) was completed in December The majority of the patients enrolled in this Phase II study had grade 2 diseases (79%) and had failed previous systemic treatments (65%). We reported the results of this Phase II study at the 2017 European Neuroendocrine Tumor Society conference. As of January 2017, 13 patients had confirmed partial response and 61 patients had stable disease corresponding to an overall objective response rate of 16.0%, with 17.1% in pancreatic neuroendocrine tumors and 15.0% in extra-pancreatic neuroendocrine tumors, and an overall disease control rate of 91.4%. Median overall progression-free survival has not been reached, but is estimated to be 16.6 months, with as-expected, longer median progression-free survival in pancreatic neuroendocrine tumors estimated to be 19.4 months and shorter median progression-free survival in extra-pancreatic neuroendocrine tumors estimated to be 13.4 months. Importantly, in the context of our potential global development strategy, there were 14 patients who had progressed after treatment with systemic therapies (Sutent and Afinitor) and all benefited from the sulfatinib treatment (four patients with partial response and 10 patients with stable disease). Sulfatinib was well tolerated with adverse events CTC grade 3 with greater than 5% incidence being hypertension (30.9%), proteinuria (13.6%), hyperuricemia (9.9%), hypertriglyceridemia (8.6%), diarrhea (7.4%) and alanine aminotransferase increase (6.2%). Based on this promising efficacy data and tolerability in patients with advanced pancreatic neuroendocrine tumors, two randomized Phase III trials, SANET-p and SANET-ep, have been initiated, as discussed below. 94

95 Figure 15: Phase II study in China of sulfatinib monotherapy in neuroendocrine tumors. Interim data demonstrates promising efficacy. Source: European Neuroendocrine Tumour Society Annual Conference Data cut-off as of January 20, MAR Sulfatinib Current Clinical Development and Near-Term Plans We currently have various clinical trials of sulfatinib ongoing or expected to begin in the near term in China and the United States. Based on the data from our completed Phase Ib/II study in China in neuroendocrine tumors discussed above, we are progressing to two Phase III trials in China, one in pancreatic neuroendocrine tumor patients and one in advanced carcinoid (extra-pancreatic neuroendocrine) tumors, with the extra-pancreatic neuroendocrine tumor study having started enrollment in December 2015 and the pancreatic neuroendocrine tumor study having started enrollment in March A Phase I dose escalation study in Caucasian patients in the United States is close to completion. Additionally, two Phase II studies of sulfatinib as monotherapy are ongoing in China for recurrent/ refractory thyroid cancer patients, with another Phase II study being conducted with Gemzar (gemcitabine) refractory biliary tract cancer patients. Studies in Neuroendocrine Tumors Phase III study in pancreatic neuroendocrine tumors, sulfatinib monotherapy China (Target Patient Population 20 in pipeline chart; Status: enrolling; NCT ) In March 2016, we initiated the SANET-p study, which is a Phase III study in patients with low- or intermediate-grade, advanced pancreatic neuroendocrine tumors. In this study, patients are randomized at a two-to-one ratio to receive either an oral dose of 300 mg of sulfatinib once daily or placebo on a 28-day treatment cycle. The primary endpoint is progression-free survival, with secondary endpoints an oral dose of including objective response rate, disease control rate, time to response, duration of response, overall survival, safety and tolerability. We expect to complete enrollment in 2019 and present top-line results thereafter. If the SANET-p Phase III data is consistent with the 17.1% objective response rate and 95

96 estimated 19.4 month median progression-free survival reported in the above-mentioned Phase Ib/II study, we believe the benefits of sulfatinib as a monotherapy to the approximately 5,000 to 6,000 new patients with pancreatic neuroendocrine tumors in China will be significant as compared to the treatment alternatives currently available to them. Phase III study in extra-pancreatic neuroendocrine tumors, sulfatinib monotherapy China (Target Patient Population 21 in pipeline chart; Status: enrolling; NCT ) In December 2015, we initiated the SANET-ep study, which is a Phase III study in patients with lowor intermediate-grade advanced extra-pancreatic neuroendocrine tumors. In this study, patients are randomized at a 2:1 ratio to receive either 300 mg of sulfatinib orally daily or placebo, on a 28-day treatment cycle. The primary endpoint is progression-free survival, with secondary endpoints including objective response rate, disease control rate, time to response, duration of response, overall survival, safety and tolerability. We expect to complete enrollment in 2019 and present top-line results thereafter. If the SANET-ep Phase III data is consistent with the 15.0% objective response rate and estimated 13.4 month median progression-free survival reported in the above-mentioned Phase II study, we believe the benefit of sulfatinib as a monotherapy to patients with extrapancreatic neuroendocrine tumors in China will be significant as compared to the minimal treatment alternatives currently available to them. Phase I sulfatinib monotherapy in advanced solid tumors United States (Target Patient Population 22 in pipeline chart; Status: enrolling; NCT ) A Phase I study in cancer patients in the United States is now close to completion, having confirmed the Recommended Phase 2 dose. We are currently in final planning for an expansion of sulfatinib development in the United States into a multi-arm Phase IIa study to explore efficacy and safety in both neuroendocrine tumor patients and solid tumor cancer patients. Phase II sulfatinib monotherapy in recurrent/refractory thyroid cancer China (Target Patient Populations 23 and 24 in pipeline chart; Status: enrollment complete; NCT ) In March 2016, we initiated two Phase II studies in China to evaluate the safety, pharmacokinetics and efficacy of sulfatinib in patients with both medullary and differentiated thyroid cancer and are observing encouraging early efficacy in these open-label studies. We believe that sulfatinib s VEGFR/ FGFR1/CSF-1R inhibition profile has strong potential in second-line thyroid cancer patients, particularly in China where there are few safe and effective treatment options for this patient population. In June 2017, we presented preliminary results of the Phase II studies at the 2017 American Society of Clinical Oncology Annual Meeting and at the American Thyroid Association Annual Meetings. The preliminary data in 16 efficacy evaluable patients showed an objective response rate based on confirmed responses of 30% (3/10) in differentiated thyroid cancer and an objective response rate of 16.7% (1/6) in medullary thyroid cancer, with all other patients reporting stable disease. Phase II sulfatinib monotherapy in chemotherapy refractory biliary tract cancer China (Target Patient Population 25 in pipeline chart; Status: enrolling NCT ) In January 2017, we began a Phase II study in patients with biliary tract cancer (also known as cholangiocarcinoma), a heterogeneous group of rare malignancies arising from the biliary tract epithelia. Gemzar is the currently approved first-line therapy for biliary tract cancer patients, with a total of approximately 18,000 new patients per year in the United States according to the National Cancer Institute, but median survival is less than 12 months for patients with unresectable or metastatic disease at diagnosis. As a result, we see a major unmet medical need for patients who have progressed on Gemzar, and sulfatinib may offer a new targeted treatment option in this tumor type. 96

97 Epitinib EGFR Inhibitor Epitinib (also known as HMPL-813) is a potent and highly selective oral EGFR inhibitor designed to optimize brain penetration. A significant portion of patients with non-small cell lung cancer go on to develop brain metastasis. Patients with brain metastasis suffer from poor prognosis and low quality of life with limited treatment options. Epitinib is a potent and highly selective oral EGFR inhibitor which has demonstrated brain penetration and efficacy in pre-clinical and now clinical studies. EGFR inhibitors have revolutionized the treatment of non-small cell lung cancer with EGFR activating mutations. However, approved EGFR inhibitors such as Iressa and Tarceva cannot penetrate the blood-brain barrier effectively, leaving the majority of patients with brain metastasis without an effective targeted therapy. Our strategy has been to create targeted therapies in the EGFR area that would go beyond the already approved EGFRm+ non-small cell lung cancer patient population to address certain areas of unmet medical needs that represent significant market opportunities, including: (i) brain metastasis and/or primary brain tumors with EGFRm+, which we seek to address with epitinib; and (ii) tumors with EGFR gene amplification or EGFR over-expression, which we seek to address with theliatinib as discussed below. Mechanism of Action EGFR is a protein that is a cell-surface receptor tyrosine kinase for epidermal growth factor. Activation of EGFR can lead to a series of downstream signaling activities that activate tumor cell growth, survival, invasion, metastasis and inhibition of apoptosis. Tumor cell division can happen uncontrollably when the pathway is abnormally activated through EGFRm+, gene amplification of wild-type EGFR or over-expression of wild-type EGFR. Treatment strategies for certain cancers involve inhibiting EGFRs with small molecule tyrosine kinase inhibitors. Once the tyrosine kinase is disabled, it cannot activate the EGFR pathway and trigger downstream signaling activities, thereby suppressing cancer cell growth. Outside of non-small cell lung cancer, EGFRm+ also occurs in glioblastoma, a common type of malignant primary brain tumor. Epitinib Pre-clinical Evidence Pre-clinical studies and orthotopic brain tumor models have shown that epitinib demonstrated brain penetration and efficacy superior to that of current globally marketed EGFRm+ inhibitors such as Iressa and Tarceva. In orthotopic brain tumor models, epitinib demonstrated good brain penetration, efficacy and pharmacokinetic properties as well as a favorable safety profile. If the pre-clinical findings on drug exposure of epitinib in the brain are confirmed in humans in our clinical trials, we believe epitinib has the potential to qualify for U.S. Breakthrough Therapy designation for patients with EGFRm+ non-small cell lung cancer with tumors metastasized to the brain. Epitinib Early Clinical Development As discussed below, we have completed two clinical trials of epitinib in China. Phase I epitinib monotherapy in non-small cell lung cancer China This first-in-human study was conducted to assess the maximum tolerated dose and dose-limiting toxicity, safety and tolerability, pharmacokinetics, and preliminary anti-tumor activity of epitinib. As of December 2014, 36 patients were enrolled in seven cohorts (20 mg, 40 mg, 80 mg, 120 mg, 160 mg, 200 mg and 240 mg). This study found that the safety and tolerability of epitinib was acceptable. No dose-limiting toxicity was observed, and the maximum tolerated dose was not reached. The recommended dose from this study was 160 mg once daily based on pharmacokinetics data and safety data. 97

98 Phase Ib epitinib monotherapy in non-small cell lung cancer (first-line), EGFRm+ with brain metastasis, (160 mg daily) China In this Phase Ib study, a total of 33 non-small cell lung cancer patients, of which 12 had previously received EGFR tyrosine kinase inhibitor treatment and 21 were EGFR tyrosine kinase inhibitor treatment naïve, were efficacy evaluable with an objective response rate of 39%, including 10 confirmed and three unconfirmed partial responses. All responses occurred in EGFR tyrosine kinase inhibitor treatment naïve patients resulting in an objective response rate of 62% and in the 11 EGFR tyrosine kinase inhibitor naïve patients who also had measurable brain metastasis (lesion diameter>10 mm per Response Evaluation Criteria In Solid Tumors 1.1) with a 64% objective response rate. Furthermore, when patients with c-met gene amplification were excluded, epitinib s objective response rate increased to 68% in the EGFR tyrosine kinase inhibitor treatment naïve patients and 70% of those patients who also had measurable brain metastasis. Epitinib was well tolerated with treatment related adverse events in the dose expansion stage CTC grade 3 with greater than 10% incidence were elevations in alanine transaminase (18.9%), elevations in gamma-glutamyltransferase (10.8%), and aspartate transaminase (10.8%). Figure 16: Phase Ib study in China of epitinib monotherapy in EGFRm+ non-small lung cancer patients with brain metastasis. Phase III initiation made on the basis of this encouraging efficacy data 28FEB Dose expansion stage data cut-off Sept 20, 2016; * Unconfirmed partial response, due to no further assessment at cut-off date; # Includes both confirmed and unconfirmed partial response; ^ c-met amplification/high expression identified Source: Chi-Med Epitinib Current Clinical Development and Near-Term Plans As discussed below, are currently planning to initiate two clinical studies of epitinib in China, including one Phase III trial. 98

99 Phase Ib epitinib monotherapy in non-small cell lung cancer, EGFRm+ with brain metastasis China (Target Patient Population 26 in pipeline chart; Status: continues to enroll; NCT ) In December 2016 at the World Conference on Lung Cancer, we presented encouraging efficacy data for an open label, multi-center, Phase I dose expansion study. Patients treated with epitinib at a 160 mg once daily dose (detailed above). During 2017, we continued to enroll patients in this Phase Ib study exploring a lower 120 mg once daily dose in the context of further optimizing tolerability for long-term usage. We expect to decide the Phase III dose in early 2018 and initiate Phase III shortly thereafter. Phase Ib/II epitinib monotherapy in glioblastoma China (Target Patient Population 27 in pipeline chart; Status: enrolling; NCT ) Glioblastoma is the most aggressive of the gliomas, which are tumors that arise from glial cells or their precursors within the central nervous system. Glioblastoma is classified as grade IV under the World Health Organization grading of central nervous system tumors, and is the most common brain and central nervous system malignancy, accounting for 46.6% of such tumors. In 2017, there were approximately 12,000 new glioblastoma cases in the United States, according to the Central Brain Tumor Registry of the United States. In 2015, there were approximately 101,600 new brain or central nervous system cancer cases in China. The standard of care for treatment is surgery, followed by radiotherapy and chemotherapy. Median survival is approximately 15 months, and the 5-year survival rate is 5.5%. There are limited treatment options for glioblastoma patients, particularly for patients with recurrent glioblastoma. Epitinib is a highly differentiated EGFR inhibitor designed for optimal blood-brain barrier penetration. EGFR gene amplification has been identified in about half of glioblastoma patients, according to The Cancer Genome Atlas Research Network, and hence is a potential therapeutic target in glioblastoma. In March 2018, we initiated a Phase Ib/II proof-of-concept study of epitinib in glioblastoma patients with EGFR gene amplification in China. This Phase Ib/II study will be a multi-center, single-arm, open-label study to evaluate the efficacy and safety of epitinib as a monotherapy in patients with EGFR gene amplified, histologically confirmed glioblastoma. The primary endpoint is objective response rate. Theliatinib EGFR Inhibitor Like epitinib, theliatinib (also known as HMPL-309) is a novel molecule EGFR inhibitor being investigated for the treatment of esophageal and other solid tumors. Tumors with wild-type EGFR activation, for instance, through gene amplification or protein over-expression, are less sensitive to EGFR tyrosine kinase inhibitors such as Iressa and Tarceva due to sub-optimal binding affinity. Theliatinib was designed with strong affinity to the wild-type EGFR kinase and has demonstrated five to ten times the potency than Tarceva in pre-clinical trials. This holds importance because tumors with wild-type EGFR activation have been found to be less sensitive to current EGFR inhibitors. This is notable in certain cancer types such as esophageal cancer, where 8-30% have EGFR gene amplification and 30-90% have EGFR over-expression. As a result, we believe that theliatinib could potentially be more effective than existing EGFR tyrosine kinase inhibitor products and benefit patients with esophageal and head and neck cancer, or other tumor types with a high incidence of wild-type EGFR activation. We currently retain all rights to theliatinib worldwide. Mechanism of Action Unlike c-met, where targeted therapies have yet to be approved in the patient population with c-met over-expression, there are successful examples of clinical efficacy among patients with EGFR over-expression in tumor types such as colorectal cancer and head and neck cancer. The most successful targeted therapy in the patient population with EGFR over-expression is the monoclonal antibody, Erbitux (cetuximab) (from Bristol Myers Squibb/Merck Serono), which is indicated for head and neck cancer and 99

100 colorectal cancer. Importantly, there remain many tumor types with high levels of EGFR over-expression for which no targeted therapies have been approved. In addition, in patients with EGFR gene amplification, there are no approved targeted therapies despite high levels of EGFR gene amplification occurring in many of the above EGFR over-expressed tumor types. Theliatinib Pre-clinical Evidence EGFR is over-expressed in a significant proportion of epithelium-derived carcinomas, which are cancers that begin in a tissue that lines the inner or outer surfaces of the body. Theliatinib inhibits the epidermal growth factor-dependent proliferation of cells at nanomolar concentrations. Of most interest is the strong binding affinity to wild-type EGFR enzyme demonstrated by theliatinib. The data indicated that upon withdrawal of the drug, the EGFR phosphorylation rapidly returns to higher levels for Iressa and Tarceva, while EGFR phosphorylation remained low for theliatinib after drug withdrawal, suggesting theliatinib may demonstrate a sustained target occupancy or slow-off characteristic due to strong binding, as shown in Figure 17 below. 140 Figure 17: Comparison of binding affinity to wild-type EGFR enzyme Phospho-peptide (%) Time (in minutes) Baseline Theliatinib Erlotinib (Tarceva ) Gefitinib (Iressa ) 9MAR Source: Chi-Med Note: When adenosine triphosphate (ATP) binds to an EGFR enzyme, the enzyme phosphorylates its peptide substrate to produce phosphorylated peptide, or phospho-peptide. Hence, low phospho-peptide levels are correlated with a high level of EGFR inhibition. Theliatinib Current Clinical Development and Near-Term Plans As discussed below, we currently have two clinical trials of theliatinib ongoing in China. 100

101 Phase I study of theliatinib monotherapy in advanced solid tumors China (Target Patient Population 28 in pipeline chart; Status: enrollment complete; NCT ) In November 2012, we initiated the first-in-human Phase I, open-label, dose escalation study in China of theliatinib administered orally to patients with wild-type EGFR gene amplification or EGFR over-expression solid tumors who have failed standard therapy. The primary objectives of the study were to evaluate its safety and tolerability in patients with advanced solid tumors and to determine the maximum tolerated dose. The study also evaluated efficacy against non-small cell lung cancer, esophageal cancer and head and neck squamous cell lung cancer, determined the pharmacokinetics of theliatinib under single dose and repeat doses; and explored the relationship between the theliatinib s activity and certain biomarkers. In September 2017, new clinical data were presented at the 20 th Annual Meeting of the Chinese Society of Clinical Oncology. Results showed that doses up to 500 mg once daily were determined to be safe and well-tolerated, with no dose-limiting toxicities and no clear maximum tolerated dose. Pharmacokinetic exposure increased with dose, with a 300 mg once daily or more considered to be sufficient to inhibit EGFR phosphorylation. Among the 21 patients that received 120 mg to 500 mg once daily, there were only four treatment-emergent adverse events of grade 3: gastrointestinal bleeding, decreased white blood cell count, anemia or decreased platelet count (1/21 = 4.8% each). There were no incidences of grade 3 rash or diarrhea. Among seven esophageal cancer patients, five had measurable lesions and could be evaluated for response. All five had stable disease. Of the efficacy evaluable patients in the 120 mg to 500 mg cohorts, 44.4% (8/18) had stable disease after 12 weeks. The study concluded that further study of theliatinib at 400 mg once daily among esophageal cancer patients with EGFR activation was warranted. This study is now in the process of expanding through the opening of further clinical sites in China. Phase Ib expansion study of theliatinib monotherapy in esophageal cancer China (Target Patient Population 29 in pipeline chart; Status: enrolling; NCT ) In January 2017, we initiated a Phase Ib proof-of-concept expansion study at 300 mg of theliatinib once daily in esophageal cancer patients with EGFR protein overexpression or gene amplification. HMPL-523 Syk Inhibitor The result of our over six-year program of discovery and pre-clinical work against Syk is HMPL-523, a highly selective Syk inhibitor with a unique pharmacokinetic profile which provides for higher drug exposure in the tissue than on a whole blood level. We designed HMPL-523 intentionally to have high tissue distribution because it is in the tissue that the B-cell activation associated with rheumatoid arthritis and lupus occurs most often. Furthermore, and somewhat counter intuitively, in hematological cancer the vast majority of cancer cells nest in tissue, with a small proportion of cancer cells releasing and circulating in the blood where they cannot survive for long. In both rheumatoid arthritis and hematological cancer, we assessed that an effective small molecule Syk inhibitor would need to have superior tissue distribution. However, many pharmaceutical and biotechnology companies had experienced difficulties in developing a safe and efficacious Syk-targeted drug. For example, the development of the Syk inhibitor fostamatinib for rheumatoid arthritis was one such failed program, although clear efficacy was observed in Phase II and Phase III trials. The main problem was off-target toxicities associated with poor kinase selectivity, such as hypertension and severe diarrhea. Therefore, we believe that kinase selectivity is critical to a successful Syk inhibitor. In addition, fostamatinib was designed as a prodrug in order to improve solubility and oral absorption. A prodrug is medication administered in a pharmacologically inactive form which is converted to an active form once absorbed into circulation. The rate of the metabolism required to release the active form can vary from patient to patient, resulting in large variation in active drug exposures that can impact efficacy. We believe HMPL-523 offers important advantages over intravenous 101

102 monoclonal antibody immune modulators in rheumatoid arthritis in that small molecule compounds clear the system faster, thereby reducing the risk of infections from sustained suppression of the immune system. Mechanism of Action Targeting the B-cell signaling pathway is emerging as a potential means to treat both hematological cancer and immunology. Both PI3K and BTK (both kinases) along the B-cell signaling pathway have proven clinical efficacy in hematological cancers, and consequently the FDA has approved drugs targeting these kinases in the past few years. Syk is a key kinase upstream of the PI3K and BTK, and we believe should therefore be an important target for modulating B-cell signaling. Figure 18: The B-cell signaling pathway and the approved drugs / drug candidates which target its component kinases HMPL-523 GS-9876 entospletinib idelalisib HMPL-689 ibrutinib 9MAR Source: Chi-Med Note: This graphic is a highly simplified representation of the B-cell signaling pathways, which are each composed of a signaling cascade of the multiple kinases indicated in the graphic. Signaling from the B-cell receptor (BCR) through the cascade, in simple terms, triggers an immune response, including tumor cell activation, proliferation, survival and migration. Syk, a target for autoimmune diseases The central role of Syk in signaling processes is not only in cells of immune responses but also in cell types known to be involved in the expression of tissue pathology in autoimmune, inflammatory and allergic 102

103 diseases. Therefore, interfering with Syk could represent a possible therapeutic approach for treating these disorders. Indeed, several studies have highlighted Syk as a key player in the pathogenesis of a multitude of diseases, including rheumatoid arthritis, systemic lupus erythematosus and multiple sclerosis. Syk, a target for oncology In hematological cancer, we believe Syk is a high potential target. In hematopoietic cells, Syk is recruited to the intracellular membrane by activated membrane receptors like B-cell receptors or another receptor called Fc and then binds to the intracellular domain of the receptors. Syk is activated after being phosphorylated by Src family kinases and then further induces downstream intracellular signals including B-cell linker, PI3K, BTK and Phospholipase C 2 to regulate B-cell proliferation, growth, differentiation, homing, survival, maturation, and immune responses. Syk not only involves the regulation of lymphatic cells but also signal transduction of non-lymphatic cells such as mast cells, macrophages, and basophils, resulting in different immunological functions such as degranulation to release immune active substances, leading to immunological reaction and disease. Therefore, regulating B-cell signal pathways through Syk is expected to be effective for treating lymphoma. The high efficacy and successful approvals of both Imbruvica (ibrutinib) (developed by AbbVie Inc.), a BTK inhibitor, and Zydelig (idelalisib) (developed by Gilead), a PI3K inhibitor, are evidence that modulation of the B-cell signaling pathway is critical for the effective treatment of B-cell malignancies. Syk is upstream of both BTK and PI3K, and we believe it could deliver the same outcome as Imbruvica and Zydelig, assuming no unintentional toxicities are derived from Syk inhibition. Entospletinib (GS-9973), a Syk inhibitor developed by Gilead, reported promising Phase II study results in late 2015 with a nodal response rate of 65% observed in chronic lymphocytic leukemia and small lymphocytic lymphoma. Nodal response is defined as a greater than 50% decrease from baseline in the sum of lymph node diameters. Gilead has also reported that entospletinib demonstrated a nodal response rate of 44.4% in an exploratory clinical study in chronic lymphocytic leukemia patients previously treated with Imbruvica and Zydelig, thereby indicating that Syk inhibition has the potential to overcome resistance to Imbruvica and Zydelig. Takeda reported similarly strong signs of efficacy for their TAK-659 Phase I dose escalation study in lymphoma, which was also published in late HMPL-523 Research Background The threshold of safety for a Syk inhibitor in chronic disease is extremely high, with no room for material toxicity. The failure of fostamatinib in a global Phase III registration study in rheumatoid arthritis provided important insights for us in the area of toxicity. While fostamatinib clearly showed patient benefit in rheumatoid arthritis, a critical proof-of-concept for Syk modulation, it also caused high levels of hypertension which is widely believed to be due to the high levels of off target KDR inhibition. In addition, fostamatinib has also been shown to strongly inhibit the Ret kinase, and in pre-clinical studies it was demonstrated that inhibition of the Ret kinase was associated with developmental and reproductive toxicities. The requirement for Syk kinase activity in inflammatory responses was first evaluated with fostamatinib, which was co-developed by AstraZeneca/Rigel Pharmaceuticals, Inc. (also called R788, a prodrug of an active Syk inhibitor R406). In June 2013, AstraZeneca announced results from pivotal Phase III clinical trials that fostamatinib statistically significantly improved ACR20 (a 20% improvement from baseline based on the study criteria) response rates of patients inadequately responding to conventional disease-modifying anti-rheumatic drugs and a single anti-tnf (a key pro-inflammatory cytokine involved in rheumatoid arthritis pathogenesis) antagonist at 24 weeks, but failed to demonstrate statistical significance in comparison to placebo at 24 weeks. As a result, AstraZeneca decided not to proceed. 103

104 Fostamatinib was also in trials for B-cell lymphoma and T-cell lymphoma. It demonstrated some clinical efficacy in diffused large B-cell lymphoma patients with an objective response rate of 22%. Entospletinib, a Syk inhibitor developed by Gilead, has features of high potency and good selectivity toward kinases. However, while the Phase II study discussed above showed that it had significant efficacy in patients with chronic lymphocytic leukemia and small lymphocytic lymphoma, its poor solubility and permeability into intestinal epithelial cells resulted in unsatisfactory oral absorption and a great variation of individual drug exposure. In addition, entospletinib shows some inhibition of the CYP3A4, CYP2D6, and CYP1A2 enzymes involved in the metabolism of certain drugs, and therefore their inhibition could increase the risk of drug-to-drug interaction when used in combined therapy. HMPL-523 Pre-clinical Evidence The safety profile of HMPL-523 was evaluated in multiple in vitro and in vivo pre-clinical studies under GLP guidelines and found to be well tolerated following single dose oral administration. Toxic findings were seen in repeat dose animal safety evaluations in rats and dogs at higher doses and found to be reversible. These findings can be readily monitored in the clinical studies and fully recoverable upon drug withdrawal. The starting dose in humans was suggested to be 5 mg. This dose level is approximately 5% of the human equivalent dose extrapolated from the pre-clinical no observed adverse event levels, which is below the 10% threshold recommended by FDA guidelines. In vitro Pharmacology HMPL-523 is a highly selective Syk inhibitor with an IC 50 of 24 4 nm (n=7) in a Syk kinase enzymatic assay. HMPL-523 has been evaluated in a kinase selectivity panel of 287 kinases and a broad pharmacological panel of 79 targets. We believe, as shown in the chart below, HMPL-523 s lack of KDR inhibition will mean a much lower risk of hypertension, which is a major off-target toxicity of R406 in clinical trials. Figure 19: HMPL-523 kinase selectivity in comparison to R406 (the Syk inhibitor metabolite of fostamatinib). R406 is shown below to be as potent in inhibiting KDR as it is in inhibiting Syk, and significantly more potent in inhibiting FLT3 and Ret. Selectivity HMPL-523 IC 50 (nm) R406 IC 50 (nm) Syk enzyme 25 ± 5 (n=10) [a] 54 ± 16 (n=10) [a] JAK 1,2,3 enzyme >300, >300, >300 [a] 120, 30, 480 [a] FGFR 1,2,3 >3,000, >3,000, >3,000 [a] 89, 22, 32 [a] FLT3 enzyme 63 [a] 9 [a] LYN enzyme 921 [a] 160 [a] Ret enzyme >3,000 [a] 5 [b] KDR enzyme 390 ± 38 (n=3) [a] 61 ± 2 (n=3) [a] KDR cell 5,501 ± 1,607 (n=3) [a] 422 ± 126 (n=3) 9MAR [a] Sources: [a]: Chi-Med, Eun-ho Lee et al, 2011 American College of Rheumatology; [b]: S. P. McAdoo and F. W. Tam, Drugs Future, 2011, 36(4), PP

105 In vivo Pharmacology HMPL-523 blocked B-cell activation in mouse whole blood and rat whole blood ex vivo challenge with an EC 50 of 1301 ng/ml (ED 50 of 2.9 mg/kg) and 332.8~471.7 ng/ml (ED 50 of 4.1~5.2 mg/kg) at 2 hours after dosing, respectively. The maximum inhibition was observed at 2 hours after oral dosing, while the significant inhibition was maintained for up to 4 hours. HMPL-523 was further evaluated in collagen-induced rheumatoid arthritis in mice and rats. HMPL-523 treatment significantly reduced disease severity in a dose dependent manner with an estimated ED 50 of mg/kg once daily in mouse collagen-induced arthritis, and suppressed paw swelling with an ED 50 of mg/kg once daily in the rat collagen-induced arthritis model (AUC 0-24h was 1408 h*ng/ml) and with the minimum efficacious dose (ED min ) of mg/kg once daily (AUC 0-24h was 413 h*ng/ml). HMPL-523 not only halted disease progression, but also reversed aspects of the disease such as paw swelling and bone resorption to normal levels at higher doses in rat collagen-induced arthritis therapeutic models. Figure 20 below shows that HMPL-523 significantly reduced bone resorption at 3 mg/kg once daily dose. The 3 mg/kg once daily HMPL-523 dose delivered similar efficacy to both fostamatinib, at a significantly higher dosage of 10 mg/kg twice daily, and Enbrel (etanercept) (an approved monoclonal antibody from Amgen/Pfizer/Takeda), at the higher dosage of 10 mg/kg once every other day. However, at the 10 mg/kg once daily dose, HMPL-523 reached maximum efficacy, which correlated with significant reduction of pro-inflammatory cytokines and chemokines in the joint lavage fluid of rats with collagen-induced arthritis, resulting in an almost total reversal of symptoms in the induced rheumatoid arthritis rat model. In vivo efficacy of the orally active HMPL-523 was evaluated in lupus-prone (MRL/lpr) mice. HMPL-523, at 20 mg/kg, significantly blocked skin lesions, delayed the onset of proteinuria (the presence of abnormal quantities of proteins in urine which may indicate kidney damage) and reduced the immune organs to body weight ratios and suppressed production of anti-dsdna antibodies (a group of anti-nuclear antibodies that act against certain DNA). Anti-tumor activity and combination synergy with other therapies In in vitro B-cell lymphoma cell lines with Syk/BCR dysregulation, HMPL-523 was found to block phosphorylation of B-cell linker protein as well as inhibit cell viability by inhibiting cell survival and increasing apoptotic rate. HMPL-523 also showed synergistic anti-tumor activity on human diffused large B-cell lymphoma cells, in combination with other drugs such as PI3K inhibitors, B-cell lymphoma 2 family inhibitors, or chemotherapies. Potent anti-tumor activity was also demonstrated in nude mice bearing B-cell lymphoma xenograft tumors with Syk/B-cell receptor dysregulation. 105

106 Figure 20: HMPL-523 in hematological malignancies. Pre-clinical superiority versus both BTK/PI3K tyrosine kinase inhibitors as well as entospletinib (GS-9973) 28FEB A. Syk inhibitors all showed a dose dependent increase in apoptotic rate (cell death) in REC-1 cells with HMPL-523 efficacy stand-out. B. HMPL-523 inhibited cells survival in panel of human lymphoma & leukemia cells standout efficacy versus ibrutinib (BTK) & idelalisib (PI3K ) inhibitors. C. Combination of HMPL-523 with other drugs (PI3K tyrosine kinase inhibitor; ABT-199; Lenalidomide) promote cell killing in DLBCL through inducing apoptosis. HMPL-523 Current Clinical Development and Near-Term Plans As discussed below, we currently have various clinical trials of HMPL-523 ongoing or expected to begin in the near term in Australia, the United States and China. We have been in a Phase I clinical trial in Australia with HMPL-523 since mid-2014 and have completed 10 cohorts of a single ascending dose program in healthy volunteers. In mid-2015, we began a multiple ascending dose study in healthy volunteers, and we successfully completed the multiple dose section of this Phase I study in October In parallel with this study, we initiated a second Phase I clinical study in Australia in patients with hematological malignancies in January